Over the past year, NRMLA has worked closely with Ginnie Mae to develop HMBS 2.0 to resolve the liquidity constraints that led to the largest bankruptcy in the reverse mortgage industry in the fall of 2022.
To gain further insights on this critically important program, Weekly Report interviewed Tim Wilkinson, vice president of capital markets and pricing, at Longbridge Financial, LLC who was heavily involved in these efforts as a member of NRMLA’s HMBS Issuers Committee.
Weekly Report: In layman’s terms, how does HMBS 2.0 benefit the reverse mortgage industry?
Wilkinson: In short, HMBS 2.0 will provide the Issuers/Servicers in the industry a new way to finance seasoned HECMs that are not eligible to be assigned to FHA and need to be bought out of existing HMBS pools once their balances reach 98 percent of the maximum claim amount. Currently, Issuers are reliant on private label securitizations, which require significant volumes of loans and are also expensive and volatile.
WR: GMNA recently published a term sheet that spells out the ground rules for implementing HMBS 2.0. What are some of the key elements of the term sheet?
Wilkinson: The Adjusted Property Value Ratio is a new concept but essentially is just an LTV measure that takes into account the benefit of FHA insurance. Limiting this ratio to 60 percent (70 percent for prior buyouts) is designed to ensure that, in most cases, the value of the collateral at the time of a loan’s final payoff is sufficient to cover the balance owed to HMBS 2.0 investors. Another important consideration is the 95 percent advance rate. If a seasoned HECM has a loan balance of $200,000, then only $190,000 of the balance is able to be financed through HMBS 2.0, requiring the Issuer to provide $10,000 (five percent) of equity. While the HMBS 2.0 program allows for both active and non-active buyouts, the current structure will likely dictate that only HECMs that are not readily assignable to FHA will be included. Beyond this, it really boils down to collateral eligibility and whether loan documentation is sufficient for given loans to be included in an HMBS 2.0 pool.
WR: Now that the term sheet is out, how urgent is it for this program to be implemented and fully operationalized?
Wilkinson: Recent private label securitizations have benefited from favorable capital markets executions, which have provided liquidity to the larger Issuers with seasoned servicing books and making the likelihood of another large HMBS Issuer default significantly less likely. However, the market for these securities is more expensive and volatile than the GNMA programs which benefit from the full faith and credit of the U.S. government, so the availability of HMBS 2.0 is a significant priority for the entire HMBS Issuer community. While HMBS 2.0 will adopt much of the framework of the existing HMBS program, there are additional elements of HMBS 2.0 that will require significant work prior to implementation. For example, certification of HMBS 2.0 pools by document custodians will have different criteria to existing HMBS.
WR: How important a role did NRMLA’s HMBS Issuers Committee play getting the term sheet published? Do you see any additional role for the committee as the industry implements HMBS 2.0?
Wilkinson: NRMLA, through its Issuer Committee, was extremely active in the process and worked collaboratively with GNMA to provide the necessary data and metrics to frame the HMBS 2 program. NRMLA President Steve Irwin should be recognized as he was instrumental in coordinating the industry’s efforts as should John Getchis and others at GNMA who spearheaded the initiative. The committee will continue to be involved through the roll out of HMBS 2.0 and beyond, although I would expect a shift of focus towards the Subservicers/Participation Agents who will need to implement the program from an operational standpoint.
