Investors Trying to Value New FHA Reverse Mortgage Product, GNMA on Board

As the release date for the new HECM Saver program approaches, investors are flying blind in figuring out how to value the new product before it’s released.

“The dealers are trying to get an idea about how it should be valued,” said Jeff Traister, head HMBS trader at Cantor Fitzgerald during a call with Reverse Fortunes on Monday.

Investors base the values on prepayment speeds and since there is no data on HECM Saver performance, lenders should expect conservative pricing.  “If you don’t know what the price is, there will be a lot of caveats involved to ensure you don’t crush yourself with unknowns,” he said.  Any new product is priced conservatively initially, and therefore, Traister doesn’t expect the HECM Saver to see any pricing above par until investors get comfortable with the cash flows.

Like everyone else, investors were surprised when the Department of Housing and Urban Development lowered the principal limit floor for the HECM Standard last week.  There was concern whether the change would spark a wave of refinances and impact prepayment speeds, but analysts don’t seem worried.

“We believe fears of a prepayment rally are overblown,” said Barclays in a report on the changes.  Because prepayment rates on reverse mortgages have remained stable over time, the company expects little reaction from borrowers “unless the incentive is significant.”

Ginnie Mae on Board

While no formal announcement has been made, Terry Carr, spokesperson for Ginnie Mae told RMD on Wednesday that the HECM Saver product will be eligible for its HMBS program.  However, the agency wouldn’t comment on when it plans to release new net worth requirements for HMBS issuers.

With only nine active HMBS issuers, a report from the Mortgage Bankers Association urges Ginnie Mae that by adding additional qualified and well-capitalized issuers, America’s seniors may benefit by increasing availability and lowering the costs of the program.  “One reason there are so few issuers may be a lack of understanding by lenders of the Ginnie Mae requirements to become an HMBS issuer,” said the association.

According to our sources, minimum net worth requirements for HMBS issuers will be at least $10 million but some believe it could be higher than $20 million.

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