CHICAGO — While Fannie Mae participation in the reverse mortgage market has been positive, more investors are needed, according to panelists and speakers at a reverse mortgage conference last week. But improving spreads are making the loans more attractive to investors, though further widening is needed. A new purchase product looks promising, but tax and insurance defaults are emerging as a problem.
Wells Fargo Home Mortgage executive Cheryl MacNally noted that Ginnie Mae previously was the only market for investor before Fannie Mae came along. She was speaking at the National Reverse Mortgage Lenders Association’s Road Show held on April 22 and 23 in Chicago.
“We’re entering a different phase,” MacNally said.
But David A. Fontanilla cautioned that there is only so much Fannie, even if healthy, can do. Fontanilla, a managing partner at Pioneer Analytics & Consulting Group, added that more investors are looking at Ginnie Mae.
And it is unclear how long Fannie will remain a buyer because the secondary lender is legally required to reduce its holdings, according to NRMLA Chief Operating Officer Liz Scholz.
“Fannie is buying; we rely on them,” Scholz said. “I don’t see it as Fannie Mae going away and there only being Ginnie Mae, but there’s uncertainty.”
| H. Marc Helm — chief operating officer of Spring, Texas-based Reverse Mortgage Solutions Inc. — said that increase investor participation will be required if the product is going to survive.
“We have to find somebody else besides Fannie to buy these things,” he said. Improving spreads, though, are making the product more attractive for investors. “With the spread widening,” said Jeffrey Lewis, chairman of Atlanta-based Generation Mortgage Co., “there’s a lot more investor demand. There’s more demand for the Ginnie Mae product. We could get an explosion in liquidity.” But the spread still is not wide enough to be effectively leveraged by investors as can be done more easily with other products, he cautioned. “At the end of the day,” said Wells Fargo’s MacNally, “we do need the spread to go up for the market to be viable.” “There’s a lot of cash on the sideline,” Generation’s Lewis pointed out. “We have to find a way to make reverse mortgages more attractive to get it.”
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photo of H. Marc Helm
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But as more loans are securitized, said Darren Stumberger, senior vice president of Denver-based The KBC Group, there will be more interest in reverse mortgages by investors who “want to see liquidity.”
It was also noted that not all reverse mortgages are the same to investors, with some preferring either fixed or adjustable rates, and other wanting either current pay or accrual.
Warehouse lenders who can provide services as well as funds also can help boost reverse mortgage lending, according to speakers on wholesale and correspondent relationships.
“There’s a need [by originators] for education and training,” said Robert Scott, manager of the wholesale sales division at Genworth Financial Home Equity Access Inc., Irvine, Calif. “We as wholesalers should do that. If you need an associate trained, wholesalers should be able to come in and do that.
“Wholesalers,” he explained, “have seen what works and doesn’t work in your area.”
Wholesalers have helped Birmingham, Mich.-based Michigan Reverse Mortgage LLC grow its origination volume, said branch manager Patrick Ervin.
“Pricing is an issue,” said Mark Smolenski, reverse mortgage coordinator at Founders Bank, Palos Heights, Ill., “but getting it done is more important.”
The introduction of purchase HECMs is expected to boost originations.
There has been pent-up demand, especially in the South, for purchase HECMs by seniors who want to move to one-story homes from two-story homes, or to smaller homes that require less maintenance.
And Realtors and home builders can help with marketing and referrals, lenders and others said.
“Every single builder [I’ve talked to] that understands the product says there’s no reason for a home purchaser who is over 62 not to use a HECM for that purchase,” said John Yedinak, a former reverse mortgage originator now in online publishing.
A problem that has yet to be dealt with is the failure of some borrowers to pay property taxes and home insurance, warned Barton Johnson, president and CEO of Life Stages Financial Inc., Newport Beach, Calif., and NRMLA President Peter Bell.
“There’s a backlog of 9,000 loans with tax and insurance defaults,” said Bell. “It’s sort of a hot potato between HUD and Fannie Mae. It’s a tough situation. It would be a big hit to the fund to settle all these defaults.”
One possible solution would be establishing tax and insurance escrows, he said, adding that if such defaults were allowed to continue without penalties HECM borrowers that have been paying their taxes and insurance could halt such payments.
Helm, whose Reverse Mortgage Solutions Inc. services more than 22,000 reverse mortgages, said some borrowers cancel their insurance after their HECMs are closed.
Noting that market penetration is only 1.7 percent, Life Stages Financial’s Johnson complained, “The things we’re doing today will not get us to that mass market.”
Yet he and Generation Mortgage’s Lewis predicted that HECM originations will reach 150,000 this year, up almost 40 percent from 115,000 last year when growth in originations waned. And Ralph Rosynek, president and CEO of Westmont, Ill.-based 1st Reverse Financial Services, forecast 160,000 HECM originations.
“When we get to June, July, we’ll be back to a much more significant growth rate,” he said. “We’re going to see 25 percent [increase] over last year.”
And market penetration could reach 10 percent in five years, Rosynek said.
