Late last month, Ginnie Mae released a term sheet for one of the most anticipated new developments for the reverse mortgage industry — a new Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) product referred to as “HMBS 2.0.”
The new term sheet details several differences from the current HMBS program, including a reduction in the HMBS pool size to 95% of the loan’s total unpaid principal balance (UPB). This move is designed to “create an additional economic incentive to protect Ginnie Mae and taxpayers against a decline in collateral value,” Ginnie Mae explained when announcing the proposed term sheet.
To get a better idea of the potential impact that HMBS 2.0 could have on the broader reverse mortgage industry, HousingWire’s Reverse Mortgage Daily (RMD) sat down with Leo Wong, partner and head of loan strategy at Waterfall Asset Management. Wong is also a member of the company’s investment committee.
An exciting development
Wong explained that he and his colleagues at Waterfall were intrigued to see Ginnie Mae lay out new details for the proposed product.
“I think, from our vantage point, this is one event that we were pretty excited to hear the news from, as are most industry participants,” he said. “I think, as a whole, the industry is reacting pretty favorably to this. Ginnie Mae has demonstrated a real commitment to the reverse mortgage products through their HECM-backed Securities program.”
Waterfall has been involved in the HECM space for more than a decade, Wong explained. One element that jumped out about the new term sheet was that Ginnie Mae appears to be focused on improving the structure of the HMBS marketplace, he said.
“[Ginnie Mae has] been very transparent about how securities are meant to support both issuers and investors,” he said. “From my vantage point, Waterfall has definitely seen firsthand how Ginnie Mae and the FHA have been proactive here, especially in stabilizing the market after the failure of Reverse Mortgage Funding (RMF).”
This is also coupled with changes being made to the HECM program by the Federal Housing Administration (FHA), including adjustments that are designed to improve the customer servicing experience.
“What’s most evident is the alignment in the ultimate goal of providing financial solutions to consumers, especially senior homeowners,” Wong said. “There’s a strong collaborative energy in D.C. and within the industry, led by the National Reverse Mortgage Lenders Association (NRMLA), which has been a leader in working to create these changes.”
Wong added that the simplicity of the program is a notable element, since it serves as an “extension of a program that the market is already familiar with, and it will greatly improve liquidity for this government program,” he said.
Ongoing impact of lender failure
The late 2022 failure of RMF was a seismic event in the reverse mortgage industry, and it added pressure to various stakeholders such as lenders, creditors and bond buyers.
“[That incident] really pressure tested a lot of the liquidity mechanisms that were in place, whether it be securitization programs or even rating agencies, and how they looked at the product,” Wong said.
But an observation arising from that is that addressing these challenges is a collaborative effort, and the further involvement of FHA and Ginnie Mae should help to boost overall market confidence, he added.
“I do think [HMBS 2.0] will potentially increase investment and liquidity into the reverse mortgage market,” he said. “For instance, I believe strongly that this now allows lenders to actually focus on the origination side. Financing counterparties and balance-sheet participants can be more constructive on growth, putting capital where it’s necessary to grow the business.”
Wong has also looked with interest at the addition of forward mortgage players expanding their product suites to include reverse mortgages, he said.
“As a general statement on the housing finance ecosystem, you definitely see newer nonbank lenders crossing over from traditionally doing 30-year fixed-rate mortgages to now also offering reverse mortgages,” he said. “For all those reasons, liquidity is extremely important because it now focuses everyone’s energy not on the liquidity of the product, which is government insured, but hopefully on the growth of the business.”
Look for more from Leo Wong on the topic of HMBS 2.0 soon.
