Major investors are here, reverse mortgage customers are coming

Passing some time reading on a flight from New York to Orlando, where he was to speak at the American Securitization Forum earlier this month, David Fontanilla, director, Knight Capital Markets, noticed an interesting item in the news. It seems private label commercial mortgage-backed securitizations had registered $10.9 billion in issuances last year, a figure about equal to the $10.7 billion in HECM MBS during 2010.

“It gives you an idea of the growth in our market,” Fontanilla told an audience attending a discussion of the reverse mortgage secondary market at the ASF. “There’s a lot of [HMBS] paper out there.” He put the aggregate at “about $20 billion, with another $10 billion worth of outstanding private labels.”

Citing for emphasis the relatively short time in which that HECM growth has occurred, Fontanilla noted that, “We went from a $1 billion market [six years ago] to $9 billion in 2009. Investors,” he stated, “are really starting to get involved. PIMCO and Fidelity are now in the product; major insurance companies, home loan banks,” too, have joined the buying.

“Everyone is starting to get involved. It seems like insurance companies have been active” raising the current yield, which he put at 4 percent. Lately, according to Fontanilla, the market is seeing about three times the normal amount of volume.  “We bought two mortgage originators and got into reverse mortgages for the ‘demographic play’,” he reported.

“There are going to be customers in this market, drawn in for many reasons like a Medicaid gap for a couple – of about $320,000 total – to rising lifespan expectations. These are just the facts,” he declared. “This product is going to be a huge part of it.”

Written by Neil Morse

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