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New HECM Products Nixed



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Ginnie Mae Closes Door on Fixed Rate Variants

New HECM Products

Two months ago we covered the spate of new HECM products offering borrowers a fixed interest rate upfront and in many cases a fixed rate for future withdrawals. There was a rush to market by a handful of lenders to offer fixed rate variant products which still fell within the guidelines of the federally insured reverse mortgage or HECM program. While FHA has not directly addressed these new products Ginnie Mae has.

Ginnie Mae is a corporation owned by the federal government within the confines of Housing and Urban Development (HUD). The purpose of Ginne Mae is to bring money into the housing and lending market through the issuance of mortgage backed securities (MBS). These securities pool several mortgages into as asset backed security secured by mortgage loan performance and guaranteed by the federal government, primarily FHA or the Federal Housing Administration.

Ginnie Mae’s decision, at least on paper, is not so much rooted in these new products potential risk to FHA’s insurance fund but rather the risk that servicers may…

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  1. I think the hybrid program would be a good answer to solve the problems of the investors, Ginnie Mae, and the home owner.

  2. I’ve always thought a Hybrid would be a welcome product for consumers. Somebody should be able to figure out how to price it and make it attractive for the investor.

  3. After 2 years in the industry I jumped employers to what is today Security One Lending. It was the early days of S1L that Mr. Torrey Larsen opened an advisory meeting by asking us what our ideal product would be. It was at that meeting in the Spring of 2007, I suggested the idea of a product which offered the benefits of a fixed rate for the initial draw of any percentage of the principal limit or any amount equal to or less than the principal limit; the choice was the borrower’s. All remaining proceeds would be offered as an ARM.

    I have never seen the drawback of that concept from that idea back then to today. The computations would be a little convoluted but should be easily done. State laws could present some problems but overall it looked like a product which could really make a difference to consumers, our industry, and importantly now, the MMI Fund.

    It fell on deaf ears in the investment community then but times have changed.

    The idea back then was to create both a closed end (fixed rate) and open end HECM (the ARM portion).

    None of this will go anywhere unless FHA starts the approval process. Several of its senior staff have declared it an excellent product at NRMLA conferences but for now it is dead. For practical reasons I hoped that the recent entries would succeed but as I have stated on several occasions, fixed rate mortgages which are not closed end expose lenders/servicers to considerable interest rate loss arbitrage.

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