About a month ago, Ginnie Mae has released a term sheet for a much-anticipated new development in the reverse mortgage industry: a new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) product called HMBS 2.0.
The new term sheet details several differences from the existing HMBS program, including reducing the HMBS pool size to 95% of the total unpaid principal balance (UPB) of the loan. Announcing the proposal, Ginnie Mae explained that the move was intended to “create additional economic incentives to protect Ginnie Mae and taxpayers from declines in collateral value.”
Leo Wong, Partner and Head of Lending Strategy Waterfall Asset Managementoutlined previously house lineThe Reverse Mortgage Daily (RMD) believes the new program will bring the greatest potential benefit to the reverse mortgage industry. In the second part of the interview, Wong offers his thoughts on the current liquidity environment, the coexistence of Ginnie Mae’s two HMBS programs, and the work that remains to be done.
current liquidity
When asked how the market liquidity situation compares with 2023, Wong said that liquidity has indeed improved, but this is mainly due to other market participants.
“Judging from the situation a year ago, the situation has improved, as evidenced by the private label securitization market,” Huang said. “But I think that’s mostly due to broader market liquidity. AAA bonds and non-QMs, fixed flips, second liens and even have gotten a fair amount of liquidity. So I don’t necessarily attribute that to reverse mortgages loan industry.
He said that the well-developed private label structure has still successfully withstood many market difficulties.
“So I think, generally speaking, bond buyers on the private label side will now move to the HMBS 2.0 side, and they will have some confidence that the assets themselves will perform over time. I think that’s observable.
Supplementary plan
As Ginnie Mae acting president Sam Valverde and his predecessor Alanna McCargo said when the development of HMBS 2.0 was initially announced, the new program is not intended to replace existing options but to complement them.
“In the medium to long term, I think there are two forms of securitization: one is through HMBS 1 launched by Ginnie Mae, and the other is a rated private-label securitization program,” Wong explained.
“The HMBS program is critical for issuers and funding issuer growth. Over time, the private label securitization market is likely to complement the HMBS 2.0 program.
But the existing technology could also be diverted to other programs, including those that are proprietary reverse mortgage programs that are not subject to the law. federal housing administration Wong said the Federal Housing Administration’s (FHA) HECM program.
“Government-insured HMBS plans are not going away,” he said. “Mainly the HMBS 2.0 program.”
Review potential risks
The catalyst for the development of HMBS 2.0 is reverse mortgage financing (RMF) is set to launch in late 2022, which will continue to have widespread impact on the entire reverse mortgage industry. When asked whether HMBS 2.0 has the potential to avoid similar situations in the future, Wong considered Ginnie Mae to be “very proactive.”
“You can tell they spent a lot of time looking at the risks and some of the thresholds in the 148 MCA,” he said. “We have observed that they have spent a lot of time reviewing and doing a lot of work in these areas, working with the NRMLA and industry to ensure that these areas do not lead to an RMF type of situation.”
Asked if there was any other important information on the prospects for HMBS 2.0, Wong said it was crucial to identify any operational speed bumps before the scheme is finally rolled out.
“I do think that the operations side — the service agencies and organizations like the FHA — are going to be working hard to figure out all the operational pitfalls to get across the finish line,” he said. “So we’ll all see how that goes. Time. We have communicated this verbally at the end of the year, but it will certainly require continued collaboration between the industry to ensure it is seamless and efficient.
