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Reverse Mortgage News for Seniors
Study of Reverse Mortgage Patterns Will Help Ginnie
Mae Market New Securities
Borrowers are more likely to be single females who
terminate slowly
May 18, 2007 – A study of the timing of reverse
mortgage terminations has been completed that provides the information
necessary for Ginnie Mae (Government National Mortgage Association) to
issue its first HECM Mortgage-Backed Security (HMBS) this year. The
Ginnie Mae HMBS will allow approved issuers to securitize and sell
FHA-insured reverse mortgages in the form of a Ginnie Mae security.
The study, published by the U.S. Department of
Housing and Urban Development's (HUD) Office of Policy Development and
Research (PD&R), analyzed 16 years of Home Equity Conversion Mortgage (HECM)
loan level data. The HECM is the Federal Housing Administration's (FHA)
reverse mortgage product.
"This groundbreaking research will enhance the
development of a secondary market for HECMs; it provides keen insights
regarding the timing of HECM loan terminations; and, will greatly
assist secondary market participants in assessing HECM loan
performance," said Robert M. Couch, President of Ginnie Mae.
The study by Edward J. Szymanoski, James C.
Enriquez, and Theresa R. DiVenti, specifically examined the timing of
HECM loan terminations and is the first to make information on HECM loan
performance widely available to investors.
Reverse mortgages do not have a repayment schedule
like traditional mortgages and are typically not repaid until the
borrower dies, moves, or refinances. As such, reverse mortgage
terminations are primarily driven by rates of mortality and mobility,
which is the timing of borrower deaths and voluntary loan payoffs
associated with moving out of the mortgaged property.
Understanding loan termination behavior and the
expected cash flow is vital to supporting a robust secondary market for
reverse mortgages.
Select Study Findings:
● HECM borrowers are more likely to be single
females.
● Single females generally terminate their HECM
loans more slowly than do single males of comparable age.
● The 10-year loan survival rates for typical
borrowers (those in their mid-70s at loan origination) are:
• 26 percent for
single females
• 17 percent for
single males
• 29 percent for
couples
● Property values for recently insured HECM loans
averages $289,000, and the initial principal limits on these loans
(maximum cash available to borrowers) averages $159,000.
Demand for HECM loans is increasing and is expected
to continue to rise as the baby boom generation enters its retirement
years. Approximately 77,000 HECM loans were originated in FY06, which
is estimated to increase to 90,000 loan originations in FY07. An
efficient secondary market would help the HECM program realize its full
market potential to meet this growing demand.
"This type of information is vital to the emerging
HECM market because it will help structure securities more effectively
and it will help investors to price the HECM security efficiently-all of
which will ultimately benefit senior home owners seeking to tap into the
equity of their home," explained Couch.
The Ginnie Mae HMBS will provide the
mortgage-backed securities marketplace with a full faith and credit
vehicle for the securitization of HECMs. The HMBS will increase
liquidity by providing capital market funding sources to primary market
HECM lenders, broadening distribution channels for HECM loans and
expanding the investor base for the HECM product.
The PD&R research addresses the critical need for
information by analyzing FHA's historical loan level data on HECM loan
terminations-a major factor in assessing loan performance.
The results of this analysis are critical not only
for program operations and private market product development, but also
for developing an effective secondary market for HECM loans.
Importantly, this study reflects FHA's commitment to create an
efficient market for HECM loans through a robust disclosure strategy.
The study can be found at Cityscape, a journal of
housing and urban policy, which showcases staff studies from HUD's
Office of PD&R, and offers expert analysis of housing markets, program
evaluation, and policy.
http://www.huduser.org/periodicals/cityscpe/vol9num1/ch1.html.
About Ginnie Mae
Ginnie Mae is a wholly owned government corporation
within the U.S. Department of Housing and Urban Development. Ginnie Mae
pioneered the mortgage-backed security (MBS), issuing the very first
security in 1970. An MBS enables a mortgage lender to aggregate and
sell mortgage loans as a security to investors. Ginnie Mae securities
carry the full faith and credit guaranty of the United States
government, which means that, even in difficult times, an investment in
Ginnie Mae is one of the safest an investor can make.
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