The Government National Mortgage Association (Ginnie Mae) has announced a policy revision for its Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program, effective from Oct. 1, 2023. The new policy allows the securitization of multiple participations related to a specific HECM in any one issuance month, according to All Participant Memorandum (APM) 23-11.
Previously, Ginnie Mae's HMBS requirements limited securitization to one participation associated with a particular HECM loan each month. This limitation often resulted in potential delays in securitization, causing liquidity pressures felt by issuers and posing "counterparty risk" to Ginnie Mae itself.
The policy change aims to reduce liquidity pressures on issuers of HECM mortgage-backed securities and ensure the sustainability of the loan program. The current policy required issuers to wait for as long as a month between the time of a HECM participation and securitization, necessitating reliance on various financing vehicles or their own capital to fund reverse-mortgage disbursements to borrowers. With the new regulations, loans can be securitized and pooled as soon as they are ready.
"Our goal is to improve issuer liquidity and strengthen this important program for America's seniors," said Ginnie Mae President Alanna McCargo.
The announcement comes after heightened scrutiny of liquidity risks related to HECM and similar reverse-loan programs following the November 2022 bankruptcy of Reverse Mortgage Funding (RMF), previously one of the leading originators of the product. In response to RMF's shutdown, the Urban Institute issued a report earlier this year highlighting flaws in the design of the HECM program that contributed to RMF's failure and could pose risks to others in the industry.
With the new policy, issuers will have to adhere to additional requirements when pooling more than a single participation from a HECM. Each securitized participation must be in sequential order, and only one per HECM will be permitted in a securitization pool. Prior pools including other participations on the loan must also be issued before a new securitization can be issued. Furthermore, additional pooled participations resulting from disbursements occurring after the first of the month will owe interest for the entire 30-day period to security holders.
The National Reverse Mortgage Lenders Association (NRMLA) has commended Ginnie Mae's decision, praising the company for addressing a complex issue that the association had been communicating about.
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