Ginnie Mae Commends New FHA HECM Loan Performance Study

Washington, DC – Ginnie Mae (the Government National Mortgage Association) praised a new staff study published by the U.S. Department of Housing and Urban Development's (HUD) Office of Policy Development and Research (PD&R) that analyzed 16 years of Home Equity Conversion Mortgage (HECM) loan level data.

"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 HECM is the Federal Housing Administration's (FHA) reverse mortgage product. The Home Equity Conversion Mortgage Terminations: Information to Enhance the Developing Secondary Market study by Edward J. Szymanoski, James C. Enriquez, and Theresa R. DiVenti, specifically examined the timing of HECM loan terminations. This is the first study to make information on HECM loan performance widely available to investors.

"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 newly released study comes as Ginnie Mae prepares its first HECM Mortgage-Backed Security (HMBS) for issuance in 2007. 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 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. 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.

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.