Ginnie Mae releases anticipated ‘HMBS 2.0’ term sheet

Ginnie Mae on Thursday released a new term sheet for its proposed Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) offering, which is an additional program that the company and reverse mortgage industry alike have referred to as “HMBS 2.0.”

Last month at a National Reverse Mortgage Lenders Association (NRMLA) event, Ginnie Mae acting president Sam Valverde indicated that the term sheet would arrive sometime in June.

“Supporting the reverse mortgage market is a top priority at Ginnie Mae,” Valverde told HousingWire’s Reverse Mortgage Daily (RMD) in an email. “We have dedicated resources that are working throughout the comment period in order to implement this program without delay.”

The new term sheet details several differences from the current HMBS program, including a reduction in the HMBS pool size to 95% of the loan’s total unpaid principal balance (UPB), a move designed to “create an additional economic incentive to protect Ginnie Mae and taxpayers against a decline in collateral value,” the company explained.

“The team at Ginnie Mae work hard to promote st​ability and growth for our markets, communities, and families alike.” said Acting HUD Secretary Adrianne Todman in a statement. “It is critical that we enhance our existing tools so we can better support seniors and the reverse mortgage industry. We look forward to receiving feedback on how best to do this.”

Tail participations are also subject to the 95% UPB limit. To qualify for participation in HMBS 2.0, an issuer “must be in good standing with HECM and HMBS program requirements and have commitment authority to issue MBS,” according to the term sheet that was reviewed by RMD.

Additionally, at the issue date, “each pool must have an original principal balance of $250,000 and must include at least 3 Participations, each related to a distinct HECM,” the term sheet reads.

The new program will also permit various property valuation methodologies, including automated valuation models (AVMs) from approved vendors or an independent broker’s price opinion, but it factors these into the pool at 90% of valuation.

This is designed to “protect Ginnie Mae in the event of a variance between the estimated property value and the market value or a future decline in  house prices,” according to an informational blog authored by Ginnie Mae senior policy adviser Karan Kaul.

Additionally, “eligible HECMs must have an adjusted property value ratio that is no greater than 60%,” a requirement designed to “cap the amount that can be pooled into HMBS 2.0” in an effort to “help limit leverage and offer additional risk mitigation for taxpayers.” HECM eligibility is applied for loans that have a UPB of no less than 98% and no more than 148% of the loan’s maximum claim amount (MCA), the company specified.

Under the terms of HMBS 2.0, participating issuers will also be responsible for repurchasing loans from specific pools when one of three things happens — when the outstanding loan balance reaches 150% of the MCA; when the loan is assigned to the U.S. Department of Housing and Urban Development (HUD); or when the HECM note is terminated.

“Access to liquidity under HMBS 2.0 will give Issuers time to resolve issues that prevent  HECMs from being assigned to [the Federal Housing Administration (FHA)],” Ginnie Mae said. “This access will relieve immediate liquidity stress and  reduce the likelihood of issuer default and portfolio extinguishment where Ginnie Mae is required to step in and take over the portfolio from an insolvent issuer.”

Additionally, the process is designed to improve investor confidence in the broader HMBS market and support existing HECM mortgage servicing right (MSR) values, the company stated.

HMBS 2.0 also aims to “provide issuers with an incremental source of servicing income to ensure that customer service operations can sustainably meet the needs of borrowers requiring assistance,” Ginnie Mae said.

At the NRMLA event, Valverde said the plan is for HMBS 2.0 to be rolled out as an active offering by the end of 2024 The term sheet is available online now, and a public comment period will be active for 30 days, ending on July 26, 2024.

Valverde and Ginnie Mae look forward to seeing what the comment period yields from stakeholders and the public.

“Soliciting public comment on the structure of the HMBS 2.0 program is critical to developing a program that supports Issuer liquidity while protecting taxpayers,” he said.