Since its inception two decades ago, the secondary marketing outlet for reverse mortgages has been a one-trick pony by the name of Fannie Mae. The arrival in late-2007 of the Ginnie Mae HECM MBS (HMBS) garnered much attention, reflected in the roughly $2 billion worth of those securitizations during the last federal fiscal year ending Sept. 30 – nearly double the previous fiscal year.
But doing business with Ginnie is more complicated than the uninitiated may know, says Ryan LaRose, executive vice-president, Celink. Comparing the old with the new, he says there is a “very protective cocoon that Fannie Mae provides its sellers,” ticking off the following benefits of doing business with that GSE:
- they handle all future draws,
- take the risk on loans not assignable at 98%,
- manage their own REOs, and
- take any remaining losses associated with REO sales, after HUD has paid their claim.
In contrast, he says “the issuer of a Ginnie security would have to understand that they would be stepping into the shoes of Fannie Mae and taking on all of that responsibility to fund advances through the life of the loan, as well as any of the ‘back-end’ risk associated with defaults, foreclosures, and REO properties.” Further, he says “a Ginnie Mae issuer would have to pay out-of-pocket (vs. the Fannie [arrangement], where they take care of all of this) for:
- monthly MIP payments to HUD,
- delinquent tax and/or insurance payments, and
- HUD-required appraisal fees
Also, if loan is active and assigned at 98 percent, he points out, there is a period of time (could range from 30-60 days) between when the assignment to HUD is approved and when HUD actually pays the claim. And, if the home is vacated, there would be property preservation expenses. In sum, LaRose advises: “The lender must be financially prepared when a securitization is not in that controlled environment known as Fannie Mae. It is important to note that the lender/issuer is on the financial hook for anything that happens to that reverse mortgage over the life of the loan.”
Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at [email protected]
