The HMBS Program: A cornerstone of reverse mortgage stability
The secondary market for Home Equity Conversion Mortgage (HECM) mortgage-backed securities (HMBS) is the financial engine that powers the reverse mortgage industry. By selling HMBS to investors with Ginnie Mae’s guarantee, lenders gain the liquidity needed to fund new loans and meet the growing demand among senior homeowners. However, each day awaiting Ginnie Mae’s HMBS 2.0 implementation spurs concerns about liquidity risks for reverse mortgage lenders who also serve as HMBS issuers.
Reverse mortgage industry participants eagerly awaited the arrival of HMBS 2.0 last year with the hopes of the program being enacted before the year’s end. Then on November 15th, it was announced that then Ginnie Mae president Sam Valverde would be stepping down effective November 30th. In its press release Ginnie Mae said, “Upon Valverde’s departure, Senior Vice President and Chief Risk Officer Gregory Keith will assume the responsibilities of Ginnie Mae President.”
The latest status of HMBS 2.0
The last update on HMBS 2.0 arrived Thanksgiving week. Ginnie Mae released the final term sheet for the proposed new program. The press release concludes, “With the policy work completed, Ginnie Mae is now focused on program implementation and is working closely with vendors and contractors to establish a comprehensive work schedule and completion timeline”.
Liquidity is the name of the game
Liquidity is critical for reverse mortgage lenders because it determines their ability to recycle capital efficiently. When loans are originated, lenders often rely on the secondary market to sell these loans as HMBS, recouping the funds needed to issue new mortgages. The impending enactment of HMBS 2.0 poses potential liquidity risks for issuing lenders that are holding HECM loans on their balance sheets. This extended holding period exposes HMBS issuers to interest rate risks, where rising rates could erode the value of loans before they are securitized and sold.
Moreover, investor confidence in HMBS is closely tied to the robustness of the market infrastructure. Investors’ appetite for HECM mortgage-backed securities must remain stable if not vigorous because a diminished investor appetite could result in lower prices for HMBS or even an inability to sell certain pools, creating a liquidity crunch for issuers.
In a market as critical as reverse mortgages, liquidity is not just a financial term—it is the lifeblood of an industry that helps seniors unlock the value of their home equity. Ensuring a robust secondary market through timely updates like HMBS 2.0 is essential for the long-term health and stability of HECM lending.
HMBS 2.0…where art thou? We welcome your arrival.

Shannon Hicks
Editor HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
1 Comment
Most HECM originators have a general misunderstanding of how the HMBS transaction works. It is NOT a sale of HECMs. It is a purchase of the right to future interest on specified HECMs. Those specified HECMs serve as collateral. The HMBS requires the acquirer to pay the contractually agreed value of those specified HECMs. As the HECMs terminate or are qualified to go into assignment, the issuer is required to repay the HMBS acquirer, the originally agreed upon contractual value of the related HECM along with the related accrued interest. Generally the HMBS has a termination date when the remaining agreed upon value of the HECMs plus the related accrued interest on the remaining HECMs must be paid in full.
It appears that the HMBS 2.0 will be much the same as the existing HMBS transactions except that the HECMs which will be assigned can be held by the interest contract acquirer until the assignment takes place.
As the HMBS rules stand now, the issuer must acquire the HECM before submitting the application for assignment. This means the issuer will usually obtain financing to cover the period from the submission of the application until FHA pays for the assignment which at times has been said in some cases to take as long as 24 months.
It seems that when RMF became aware that the HECMs they purchased from AAG would likely not have the necessay financing needed to fund the assignment transactions, RMF declared bankruptcy. If that scenario is correct, this most likely shows incompetence in performing due diligence as to the AAG transaction.
If the foregoing explanation of the HMBS and HMBS 2.0 transactions is materially correct, HMBS 2.0 will help the issuer in several of the following ways (plus possibly more):
1. There will be no need for finding financing to cover the period from assignment application to FHA paying for the assignment.
2. Risk from the need to refinance the loan related to the assignment period if the assignment period takes longer than the period of the loan.
3. The risk of paying higher interest for other financing due to the risks of obtaining and keeping the financing to cover the period of assignment processing will be eliminated.
Let us hope that the new GNME president sees the need for the immediate implementation of HMBS 2.0.