Longbridge's Tim Wilkinson on reverse mortgage liquidity and HMBS 2.0 stall

"The Ginnie Mae HMBS program has a requirement that once the loan balance hits 98% of the maximum claim amount, the issuer is required to repurchase that loan from the HMBS pool. This dates back to when the program was first launched in the 1980s, so that it would be the Federal Housing Administration (FHA) who was likely managing the servicing of these loans at the period of time when there was most likely to be a maturity event, particularly related to borrower death. My thought would be that it would allow for the FHA-directed servicer to make judgment calls related to the best way to proceed when that loan became due and payable, to ultimately balance the needs of the borrower and the heirs with the economics of what happened to that property. That has just been carried through."

"Do you believe this is one of the main reasons for financing and balance-sheet stress among reverse mortgage lenders? Wilkinson: The issue, obviously, depends on when that loan is originated and at what point it will hit the 98%. Given that a lot of times the prevailing product is a floating-rate product, interest rates will dictate the period of time at which that 98% threshold will be reached. Particularly for RMF which bought quite a few seasoned loans from various places and resecuritized them, or took over the issuer status on those they had a disproportionately large number of these loans relative to their servicing book at large."

"But the issue was compounded by, in theory, all active loans are accepted by FHA on assignment under a claim type. But there have been problems at certain times due to various issues with FHA bandwidth, or sometimes when the FHA has moved their vendors, that has resulted in the time frame for a loan to be accepted for assignment to extend. While roughly 9% of loans that hit"

Ginnie Mae HMBS requires issuers to repurchase reverse mortgages once the loan balance reaches 98% of the maximum claim amount. The rule originated when the program launched in the 1980s to ensure the Federal Housing Administration would manage servicing during periods when maturity events were most likely, especially borrower death. The buyout allows the FHA-directed servicer to make judgment calls on how to proceed when the loan becomes due and payable, balancing borrower and heir needs with property and transaction economics. The repurchase timing can create financing and balance-sheet stress for lenders, depending on origination timing and when the 98% threshold is reached, which is influenced by floating interest rates. Stress can be amplified when FHA assignment acceptance is delayed due to bandwidth constraints or vendor changes.

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