HECM limit for the particular geographic area. In addition, a monthly MIP is assessed
that equals 0.5% of the mortgage balance.4 Lastly, a servicing fee is assessed
monthly at $30 per month for fixed rate and $35 for adjustable rate mortgages, though
there is a recent trend by lenders to eliminate these fees for competitive reasons.
Figure 7. Pct. of HECM Loans by
Age at Origination, as of May 2010
HECM loan origination traditionally had been targeted toward the mid-70s year old
age group, or more recently, loans have been increasingly targeted to younger
borrowers. This shift has resulted in changes within the complexion of the age
blending in HMBS as well (see Figure 7).
Under the terms of the loans, homes must be kept in good repair and the servicer
must verify the condition of the mortgaged property. If needed, servicers must ensure
that repairs are completed before funds are disbursed to the borrower. The servicer
may deem the loan note due and payable for failing to complete repairs, but it must
first seek, and receive, HUD approval.
Source: Ginnie Mae.
Each year, the servicer must obtain a written certification from the borrower that the
property is still the borrower's principal residence. In the event that the borrower no
longer occupies the property, the servicer may request a deed in lieu of foreclosure,
but, in any event, it must obtain HUD approval before calling the loan note due and
payable for an occupancy violation.
Borrowers are also obligated to pay taxes and insurance. Borrowers may elect to pay
taxes and insurance on their own or allow the servicer to pay on his or her behalf. In
the event that the servicer pays the taxes and insurance, either a portion of the
monthly payments is withheld to advance against taxes and insurance or a portion of
the line of credit is set aside for those advances. In most cases, borrowers have to
pay their own taxes and insurance, but this method may create problems with real
property tax deferrals and tax lien transfers. Therefore, servicers are required to
ensure that payments are made regularly and completely.
A Look at the Securitized Market
Until the introduction of Ginnie Mae-guaranteed HMBS in 2007, Fannie Mae was the
principal investor in HECMs, purchasing them as whole loans and providing liquidity to
approximately 90% of the loan origination. Since its start in 2007, the Ginnie Mae
HMBS program has grown significantly, and market reports suggest Fannie Mae's
share fell dramatically.
In the late 1990s, Lehman issued several private reverse mortgage-backed securities,
and in 2007 and 2008, several other private issuers placed HMBS in the market.
Ginnie Mae-backed HMBS issuance has grown over the last several years, but the
bulk of the growth has really come in the last year. While $12.8 billion of HMBS issues
over the last twelve months represents less than 5% of GNMA II issuance and a
miniscule portion of total agency MBS, the rate of growth has been strong and has
begun to attract considerable investor interest. The pace of transactions has grown
too, and since January, an average of 40 deals has come to market monthly.
Under Ginnie Mae's current rules, pools are limited to single issuer; therefore, the
average deal sizes are relatively small ($44 million), ranging from just over $1 million
4 There has been some recent discussion at HUD to examine reducing the initial insurance fees but
raising monthly payments. Reductions in initial fees could reduce some frictional costs of refinance.