Analyst: The HMBS 2.0 developments should benefit the reverse mortgage industry

An exciting development

Wong explained that he and his colleagues at Waterfall were intrigued when Ginnie Mae saw new details emerge for the proposed product.

“I think, from our point of view, this is an event that we were very excited to hear about, as were most of the industry participants,” he said. “I think the sector as a whole is responding quite positively to this. Ginnie Mae has demonstrated a real commitment to reverse mortgage products through their HECM-backed Securities program.”

Waterfall has been involved in the HECM space for more than a decade, Wong explains. One element that stood out about the new term sheet was that Ginnie Mae appears focused on improving the structure of the HMBS marketplace, he said.

“[Ginnie Mae has] We have been very transparent about how securities are intended to support both issuers and investors,” he said. “From my perspective, Waterfall has certainly seen firsthand how Ginnie Mae and the FHA have been proactive here, especially in stabilizing the market after the failure of Reverse Mortgage Financing (RMF).”

This is also accompanied by changes being made to the HECM program by the Federal Housing Administration (FHA), including customizations designed to improve the customer experience.

“What is most clear is the alignment with the ultimate goal of providing financial solutions to consumers, especially senior homeowners,” Wong said. “There is a strong collaborative energy in DC and within the industry, led by the National Association of Reverse Mortgage Lenders (NRMLA), which has been a leader in creating these changes.”

Wong added that the simplicity of the program is a notable element because it serves as an “extension of a program that the market is already familiar with and will significantly improve the liquidity of this government program,” he said.

Continued impact of lender failure

The failure of RMF in late 2022 was a seismic event in the reverse mortgage industry and increased pressure on various stakeholders such as lenders, creditors and bond buyers.

“[That incident] A lot of the liquidity mechanisms in place were put under pressure, whether it was securitization programs or even rating agencies, and the way they looked at the product,” said Wong.

But one observation that comes from this is that addressing these challenges is a joint effort, and further involvement from FHA and Ginnie Mae should help boost overall market confidence, he added.

“I think [HMBS 2.0] will potentially increase investment and liquidity in the reverse mortgage market,” he said. “For example, I strongly believe that this now gives lenders the opportunity to actually focus on the origination side. Financing counterparties and balance sheet participants can be more constructive for growth, by placing capital where it is needed to grow the business.”

Wong has also been watching with interest the emergence of term mortgage players expanding their product suites to include reverse mortgages, he said.

“As a general statement about the home financing ecosystem, you’re definitely seeing newer non-bank lenders moving from traditional 30-year fixed rate mortgages to now also offering reverse mortgages,” he said. “For all these reasons, liquidity is extremely important, because now everyone’s energy is not focused on the liquidity of the product, which is insured by the government, but hopefully on the growth of the company.”

Look for more from Leo Wong on the topic of HMBS 2.0 soon.