Cityscape - Volume 19 Number 1

Cityscape: A Journal of Policy Development and Research • Volume 19 Number 1 • 2017

U.S. Department of Housing and Urban Development • Ofﬁce of Policy Development and Research

Cityscape

Financial Sustainability and the

Home Equity Conversion Mortgage:

Advancing Fiscal Soundness

and Affordable Financing for

Senior Homeowners

Edward J. Szymanoski

Alven Lam

Christopher Feather

U.S. Department of Housing and Urban Development

Opinions expressed in this article are those of the authors and do not necessarily reﬂect the views and policies

of the U.S. Department of Housing and Urban Development or the U.S. government.

Abstract

The Home Equity Conversion Mortgage (HECM) has undergone signiﬁcant changes in

its 25-year history since its modest start as a 2,500-loan pilot in 1987 to its nearly one

million endorsements at the end of 2015. The Great Recession more recently underscored

the need for measures to secure the ﬁnancial sustainability of these reverse mortgages.

Such measures have sought to mitigate risk and improve the ﬁnancial health of the

HECM program while promoting affordable ﬁnancing through the HECM mortgage-

backed securities, or HMBS, program. Improved ﬁscal soundness for HECM ensures the

program is viable and continues to provide affordable ﬁnancing in the conversion of home

equity for senior homeowners. This article examines changes made toward increasing the

ﬁnancial sustainability of HECM through ﬁscal soundness and the facilitation of affordable

ﬁnancing. These changes are especially relevant as American households continue to age

and seek the option to affordably access their housing wealth while remaining in their home.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Introduction

The U.S. Congress enacted the Home Equity Conversion Mortgage (HECM) “to meet the special

needs of elderly homeowners by reducing the effect of […] economic hardship” and “to encourage”

increased involvement of mortgage market actors in the production and servicing of such reverse

mortgages.

1,2

The two resulting HECM programs within the U.S. Department of Housing and

Urban Development (HUD)—the Federal Housing Administration (FHA) HECM program and the

Ginnie Mae HECM mortgage-backed securities (HMBS) program—facilitate access to affordable

ﬁnancing for eligible senior homeowners seeking to borrow against their home equity and stay

in their home while not making monthly mortgage repayments.

Although the reverse mortgage

is a relatively specialized component of the mortgage market,

the provision of government

insurance has resulted in a reverse mortgage market in which FHA-insured HECMs constitute

90 to 95 percent of the total number of reverse mortgages

(Moulton, Haurin, and Shi, 2014). As

a consequence, HECM has become an important tool for the federal government in providing a

social safety net for seniors. Nonetheless, this program has been tempered by ﬁnancial constraints

accentuated by the most recent economic downturn.

In the past decade, HECM governance underwent signiﬁcant changes and reﬁnements. The

purpose of many of these changes was to enhance ﬁnancial sustainability both in terms of ﬁscal

soundness for FHA’s HECM insurance program and of affordable ﬁnancing facilitated through

Ginnie Mae’s HMBS program. These changes have been challenging, given ﬁnancial realities con-

straining the extent of HECM’s social beneﬁts. The following article examines recent modiﬁcations

to the HECM program that focus on changes made to promote greater ﬁnancial sustainability. This

analysis provides insights to further inform policy design and innovation in securing the viability

of HECM and continuing to enable aging in place

6,7

for many senior homeowners.

Fiscal Soundness and the HECM Insurance Program

In the HECM insurance program, FHA insures participating reverse mortgage lenders against

realized losses on HECM loans. The provision of insurance on HECMs is essential to the program’s

functioning and the borrower’s access, but it also presents risks that must be mitigated to promote

Reverse mortgage is deﬁned as a loan in which the homeowner borrows against the value of the home. Under this

arrangement, no principal and interest repayment is required for the borrower until the borrower dies or sells the home.

Housing and Community Development Act of 1987, Pub. L. 100-242, 101 Stat. 1015.

From ﬁscal year (FY) 1990 to FY 2015, HUD reported 949,858 HECM endorsements originated. FHA-insured reverse

mortgages represent much of the nonjumbo reverse mortgage market.

HECMs are estimated to represent 0.50 to 0.60 percent of the total mortgage market. HECMs exceeded 1.00 percent of

the market in 2008, with 112,154 endorsements, despite more endorsements, at 114,692, in 2009. The estimates are the

authors’ calculations using sources from HUD and the Mortgage Bankers Association.

Fewer private-label reverse mortgages exist.

Aging in place can be deﬁned as “the ability to live in one’s own home and community safely, independently, and

comfortably, regardless of age, income or ability level” (CDC, 2013: 1).

Aging in place is an important component of the HECM program, because lower-income seniors who have lived in a modestly

priced home that they have fully or nearly paid off may be especially reluctant to sell the home and buy or rent new housing.

HECM provides a unique ﬁnancing mechanism to ensure seniors remain in their home and age in place (HUD, 2015a).

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

49Cityscape

ﬁnancial sustainability in the program. The open-ended nature inherent to reverse mortgages,

especially compared with forward mortgages, presents a fundamental risk to the ﬁscal soundness

of the program that must be addressed. Under their respective terms, reverse mortgages typically

become due and payable in the event of morbidity, mobility, or prepayment. Repayment occurs in

instances of the borrower’s death, moving out, sale of the home, loan repayment on his or her own

volition, or failure to meet the obligations of the mortgage—such as property tax, insurance pay-

ments, or maintenance costs. By comparison, reverse mortgages differ greatly from the regular and

periodic payments of principal and interest toward termination on forward mortgages.

Without guaranteed insurance, existential and scalability challenges exist for reverse mortgage

products, which are attributable to distinct long-term capital constraints that HECM loans impose

that require lenders to allow senior borrowers to remain in their homes for an undetermined amount

of time without loan repayments. The open-ended maturity of HECM is unique. A ﬁxed-rate, 30-year

forward mortgage has a set maturity timeline for the borrower to fulﬁll the terms of the housing

loan.

On the other hand, HECM loan termination is unscheduled. In large part, HECM maturities

can be approximated to a fair degree through actuarial factors related to the borrower’s longevity

and morbidity. No ﬁxed termination date exists, however, because the loan will become due and

payable only when the borrower passes on, moves, sells his or her home, or voluntarily prepays.

In practice, should a 72-year-old woman

take out a HECM loan, the lender could approximate

the life expectancy of the borrower to mirror the national average age for American women at 81.2

years. In the event the borrower lives to the age of 90 years, however, the lender is constrained by

the open-ended nature of its obligated capital. In this instance, the lender is constrained with the

set allocation of capital for an additional 8 years or more from the original estimates. The longer

time horizon presents added risk for the lender, including variability related to home price appre-

ciation and interest rates. Should economic tumult occur when HECM matures and home prices

decline, the scenario could incentivize borrowers and their heirs to walk away from repayment. In

the resulting default, the lender would resort to liquidating collateral to attempt to recapture some

form of its investment. Yet, repayment would likely be less than the original value compared with

when HECM was issued and insured to the borrower some 18 years or more before. This example

illustrates the dilemma between the HECM insurance program’s innovation and challenges in

managing the ﬁnancial health of the program.

HECM innovatively provides a signiﬁcant social beneﬁt in terms of aging in place. The innovation

concurrently requires ﬁscal scrutiny in the provision of government insurance. FHA-insured reverse

mortgages provide lenders with certainty in recapturing potential losses incurred through their lending

of capital to senior borrowers. Nevertheless, through the provision of insurance, government resources

are at risk. Although the government provides insurance on these reverse mortgages, due in the event

the borrowers default because of inability to meet HECM loan obligations, the ﬁscal resources to

support are intended to ultimately come from the insurance premiums paid from the borrowers into

the insurance fund. Such program design makes the HECM program self-sustaining, with premiums

supporting any prospective losses. Premiums are supposed to be designed to cover losses.

In fact, without prepayment penalties, it can be argued that forward mortgages incentivize earlier repayment of loan obligations.

The average age of a HECM borrower was reported as 71.8 years in 2014 (HUD, 2015b).

In reality, lenders use much more speciﬁc and targeted analytics to assess borrower mortality.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Growth in lender-ﬁled insurance claims can jeopardize the funding mechanism supporting HECM

loans. Through the Mutual Mortgage Insurance (MMI) Fund, lenders ﬁle insurance claims that

are evaluated and adjudicated to determine payouts, as appropriate, by the MMI Fund. Insurance

enables lenders to recapture losses incurred by defaults. As a consequence, HECM insurance claim

payouts have the potential to undermine the ﬁscal soundness of the HECM insurance program,

especially in cases of unexpected surges in HECM defaults. Such risks accordingly were under-

scored in the economic stress of the Great Recession (December 2007 to June 2009), exacerbated

by a trend of lending higher risk HECM loans (HUD, 2015a).

Demand for HECM loans grew in the immediate aftermath of the Great Recession. Because many

households had limited access to ﬁnancial resources, senior homeowners sought to liquidate their

housing wealth to meet their short-term living needs. Senior liquidation led to increased HECM

risk and contributed to diminishing ﬁscal soundness for the HECM insurance program. Borrowers,

markedly younger and with higher amounts of property indebtedness, were unable to meet their

ﬁnancial obligations under HECM and, subsequently, defaulted on loans. Government insurance

on these riskier loans placed increased ﬁnancial stress on the MMI Fund, and its ﬁscal resources

experienced an accelerated rate of payouts funding HECM insurance compensation to lenders.

In due time, the MMI Fund’s HECM ﬁnancing account required FHA to request a mandatory ap-

propriation of $1.7 billion at the end of 2013, marking the ﬁrst time FHA used such an authority

in its 79-year history (CBO, 2013; HUD, 2013). Although the requested mandatory appropriation

was unprecedented, it was not the ﬁrst time a fund transfer had occurred. In fact, a transfer from

the forward mortgage portfolio of $4.26 billion accompanied this $1.7 billion infusion into the

HECM ﬁnancing account in 2013. As illustrated by exhibit 1, the MMI Fund has transferred funds

between the HECM and forward mortgage ﬁnancing accounts numerous times since 2009. The

transfers demonstrate the precarious ﬁnancial health of the HECM insurance program and the

extent of pressures placed on the MMI Fund.

In response to the Great Recession, FHA used its authority—through the design and administration of

guidelines for reverse mortgages to be considered for government insurance—to make programmatic

changes. The modiﬁcations largely had the intention of managing FHA’ s portfolio risk to improve the

HECM insurance program’s ﬁnancial sustainability. Such changes followed Congress’s initial post-

recession reforms focused on incorporating strengthened consumer protections into the HECM insur-

ance program. Protections included independent counseling for prospective HECM borrowers, prohibi-

tions on HECM lenders’ selling other ﬁnancial or insurance products, and limits on origination fees.

Following the MMI Fund’s projected 2012 losses, Congress legislated additional safety and soundness

requirements for the program by empowering the Secretary of HUD to determine necessary actions

“to improve the ﬁscal safety and soundness of the program...”

The legislation resulted in multiple

changes by FHA to improve the ﬁscal soundness of the HECM insurance program. The purpose of

the programmatic changes and reﬁnements centered on the principle that, without ﬁscal solvency, the

ﬁnancial health of HECM loans would be threatened as would be the option for senior homeowners

to age in place while accessing affordable ﬁnancing in the liquidation of their housing wealth.

Housing and Economic Recovery Act of 2008, Pub. L. 110-289, Section 2122.

Reverse Mortgage Stabilization Act of 2013, Pub. L. 113-29.

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

51Cityscape

Exhibit 1

MMI Fund Portfolio, HECM and Forward Mortgage Accounts, Economic Value, and

Fund Transfers: 2009–2015

Fiscal

Year

HECM

Economic Value

($)

Forward Mortgage

Economic Value

($)

Fund Transfers

2009 909,000,000

2,732,000,000 None

2010 – 503,000,000

←

5,160,000,000 $1.748 billion transfer in May 2010 to HECM

ﬁnancing account from forward mortgages

ﬁnancing account to cover expected net cost of

HECM FY 2009 book of business

2011 1,358,000,000

←

1,193,000,000 $535 million transfer in May 2011 to HECM

ﬁnancing account from forward mortgages

ﬁnancing account to cover the increase in

expected HECM losses

2012 – 2,799,000,000

– 13,478,000,000 None

2013 6,540,000,000

←

– 7,871,000,000 $4.26 billion transfer to HECM ﬁnancing account

from forward mortgages ﬁnancing account

2014 – 1,166,000,000

→

5,930,000,000 $770 million transfer to forward mortgages ﬁnancing

account from the HECM ﬁnancing account. Without

the transfer, forward mortgages account economic

value would have been $2.68 billion lower than the

FY 2013 estimate

2015 6,778,000,000

17,044,000,000 None

2016 – 7,721,000,000 35,270,000,000 None

FY = ﬁscal year. HECM = Home Equity Conversion Mortgage. MMI = Mutual Mortgage Insurance.

Economic value is an estimate, derived from econometric modeling, deﬁned as the “cash available to the Fund, plus the net pres-

ent value of all future cash inﬂows and outﬂows expected to result from the outstanding mortgages in the Fund” (National Affordable

Housing Act of 1990, Pub. L. 101-625, 101st Congress, November 28, 1990).

Through these interaccount fund transfers, the amount becomes explicitly reserved for the gaining ﬁnancing account and is no

longer available to cover unexpected losses of the losing ﬁnancing account.

These transfers lower the forward mortgages portfolio’s economic value.

This transfer lowers the HECM portfolio’s economic value.

Note: HECM ﬁnancing account and forward mortgage ﬁnancing account are italicized for ease of reference.

Sources: FHA (2016, 2015a, 2014a, 2013a, 2012, 2011, 2010, 2009)

Advancing the Financial Health of the HECM Insurance

Program

Signiﬁcant deterioration in the ﬁnancial health of the HECM insurance program underscored the

need to strengthen the capital position of the MMI Fund’s HECM portfolio. Whether risk inherent

in the HECM model, economic pressures, housing price depreciation, or borrower negligence in

meeting the obligations on these loans, the need for reforms became clear. FHA needed to make

changes to advance the program’s ﬁscal soundness. Through the Reverse Mortgage Stabilization

Act of 2013, Congress empowered the Secretary of HUD to improve the ﬁnancial health of the

HECM insurance program. Since the passage of the act, FHA has instituted multiple programmatic

changes to improve the program’s ﬁnancial health, which reﬂects the desire to ensure long-term

sustainability of HECM. The following section examines ﬁve of the programmatic changes, out-

lined in exhibit 2, to advance the ﬁnancial sustainability of the HECM insurance program.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Exhibit 2

Programmatic Changes and Reﬁnements to the HECM Insurance Program

Year

Initiated

HECM Insurance

Program Modiﬁcation

Purpose Sources

2011 Adjustable-Rate

Mortgage Interest Rate

Adjustment Cap

Consumer protection for the bor-

rower of an annual adjustable-rate

HECM

HECM Protocol,

Section 5.D.4.f

2013 First-Year Initial Loan

Disbursement Limits

Mitigates increased risks of default

for borrowers who took the maxi-

mum initial draw in meeting their

property tax, insurance, and mainte-

nance costs

ML 13-27 (FHA, 2013b)

2013 Restructuring of the

HECM Premium

Structure

Risk-based pricing to reﬂect the

amount of the initial year loan dis-

bursement

ML 10-34 (FHA, 2010b),

ML 13-27 (FHA, 2013b),

ML 14-21 (FHA, 2014e)

2013 Mandated Financial

Assessment for

Borrowers

Assurance that borrowers are

ﬁnancially capable of meeting their

HECM loan obligations

ML 13-27 (FHA, 2013b),

ML 13-28 (FHA, 2013c),

ML 13-45 (FHA, 2013d),

ML 14-21 (FHA, 2014d),

ML 14-22 (FHA, 2014e),

ML 15-09 (FHA, 2015c),

ML 15-05 (FHA, 2015b])

2014 Single Lump-Sum

Payment for Fixed-Rate

HECMs

Conformance with lender preference

to eliminate single lump-sum payment

option for adjustable-rate HECMs

ML 14-10 (FHA, 2014b),

ML 14-11 (FHA, 2014c)

2015 Deferral of Due and

Payable Status

for Certain Eligible

Nonborrowing Spouses

Provision to eligible nonborrow-

ing spouses of option to retain the

property with payment for HECM’s

unpaid principal balance or 95% of

appraised value

ML 15-03 (FHA, 2015a),

ML 15-05 (FHA, 2015b)

HECM = Home Equity Conversion Mortgage. ML = Mortgagee Letter.

Note: “Sources” refer to the documents with HECM insurance program modiﬁcations, such as Mortgagee Letters and HECM

Protocols.

Adjustable-Rate Mortgage Interest Rate Adjustment Cap

Lenders have long established the precedent of establishing interest rate limits on adjustable-rate

mortgages. Reverse mortgages are no exception. Proprietary reverse mortgages often have interest

rate caps that vary from product to product (HUD, 2011). These caps have the purpose of protect-

ing borrowers from large interest rate swings. For HECMs, FHA imposed annual and lifetime inter-

est rate caps on its annual adjustable loans to limit interest rate increases in rapidly rising interest

rate environments. The caps help protect remaining borrower equity in the home to the beneﬁt of

the borrower and also limit the growth of the loan balance that helps protect the insurance fund.

No mandated cap previously existed, other than the industry convention of a voluntary 10 percent

lifetime limit on interest rate increases. FHA decided to go further with the development of a

2-percent annual cap and a 5-percent lifetime cap, commonly referred to as the 2/5 cap structure.

The 2/5 cap structure on annual adjustable HECMs places a ceiling on the maximum amount lenders

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

53Cityscape

may add to the initial interest rate on adjustable-rate HECM loans (HUD, 2011). Each HECM with an

interest rate that adjusts monthly is subject to a lifetime cap determined by the lender at loan origina-

tion (Ginnie Mae, 2015a). The cap structure affects how much borrowers pay on their loan balance.

It also affects the growth of the principal limit. A higher rate means a lower principal limit, which

thereby reduces the amount the borrower can draw in accessing his or her housing wealth (HUD,

2011). The 2/5 cap on annual adjustable HECM loans protects borrowers from a certain magnitude

of interest rate increases. Caps also conversely limit potential net interest margins for lenders and

investors in HECM loans, threatening the participation of these actors in the program.

Mandated Financial Assessment for Borrowers

Rises in tax and hazard insurance defaults led FHA to establish a requirement for lenders to

conduct a ﬁnancial assessment for borrowers beginning in early 2014. The purpose of the ﬁnancial

assessment is to require lenders to assess potential borrowers in terms of ﬁnancial capacity and

future compliance with HECM provisions (FHA, 2013b). In particular, the ﬁnancial assessment

mandates certain components in evaluating a borrower’s ability and willingness to meet ﬁnancial

obligations and comply with HECM requirements (FHA, 2013c).

The ﬁnancial assessment provides underwriting guidance and documentation requirements for

lenders in the evaluation of prospective borrowers seeking purchase and reﬁnance HECM loans. The

ﬁnancial assessment also stipulates the performance of credit reviews with cashﬂow and asset analy-

sis, the evaluation of extenuating circumstances and compensating factors, and the assurance that

the prospective borrower has made proper payment of property tax and insurance in determining

eligibility for the HECM program (FHA, 2013c). Together, the components of the ﬁnancial assess-

ment seek to advance ﬁscal soundness in the HECM insurance program by ensuring borrowers are

ﬁnancially capable of meeting their HECM loan obligations that protect the value of the lien.

Policies To Restrict First-Year Draws and Fixed-Rate HECMs to Single Draw

The aftermath of the Great Recession underscored the risks of borrowers’ behavior in HECM

defaults. In particular, a key lesson from experience was the nature of borrowers’ HECM draws. In

2010, 75 percent of borrowers opted for the full draw at closing versus 43 percent in 2008 (CFPB,

2012). Higher default rates became evident for those who opted to take the maximum initial draw

at the time of closing their HECM loan. Borrowers’ decisions to take higher draws raised the risk

of default, especially in terms of delinquency on future property tax, hazard insurance, and other

maintenance costs.

Borrowers increasingly had immediate ﬁnancial needs in paying off high levels of existing debt. Of-

ten borrowers used HECM principal payments as a crisis management tool to draw the full amount

of their loan to meet short-term ﬁnancial needs. With no cash set-asides, future tax, insurance, and

property maintenance payments often went unanswered. Constrained ﬁnances ultimately impaired

the ability of the borrowers to age in place as their homes entered into tax delinquency or became

uninhabitable.

Lender preferences also reinforced the trend toward large initial draws on ﬁxed-rate HECMs, as

illustrated in exhibit 3. Conventional lending practices favored these loans, causing the share of

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Exhibit 3

HECM Loan Endorsements by Rate Type, 1990–2015

20,000

40,000

60,000

80,000

100,000

120,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

HECM loan endorsements

Annual ARM Monthly ARM Fixed-rate mortgage

ARM = adjustable-rate mortgage. HECM = Home Equity Conversion Mortgage.

Sources: HUD (2015a, 2015b)

ﬁxed-rate HECMs to grow as lenders promoted large initial disbursements to increase their interest

rate margin and ease sale for securitization. Furthermore, this practice presented a systemic risk,

because lenders were required to effectively manage interest rate risk by providing borrowers with

the ability to draw ﬁxed-rate funds at unknown amounts on future dates (Ginnie Mae, 2014b).

In late 2013, FHA instituted restrictions on lump-sum draws in the borrower’s ﬁrst year of the

HECM loan. These restrictions capped the amount drawn, at either the lesser of 60 percent of

the principal limit or the sum of mandatory obligations plus 10 percent of the principal limit,

during the ﬁrst 12 months subsequent to loan closing (FHA, 2013b). This policy modiﬁcation

has facilitated changes toward ﬁnancial sustainability for the HECM insurance program. It has

contributed to a predominant shift to adjustable-rate mortgages, with borrowers electing to receive

payments over time using the line of credit or modiﬁed tenure or term payment options compared

with ﬁxed-rate HECMs in which borrowers draw down all available funds at the time of loan clos-

ing. Although causing a reduction in HECM demand, the change was made to ensure the ﬁnancial

future of borrowers could better sustain HECM obligations and reduce payouts of insurance claims

from the MMI Fund. As a result, HECM insurance program data indicate reduced ﬁrst-year draws

in ﬁscal year (FY) 2014 and FY 2015 loan disbursement patterns (HUD, 2015a).

Lenders offered options encouraging borrowers to take the 60 percent of the principal limit during

the ﬁrst 12 months of the initial disbursement and then shortly thereafter to draw the remaining 40

percent from the HECM loan regardless of borrowers’ needs. This practice, delaying 40 percent of

the draw by only 12 months, ran counter to FHA’ s objective of reducing large, upfront draws (FHA,

2014b). FHA has sought to address this issue through restrictions on lump-sum draws for adjustable-

rate HECM loans and restructured mortgage insurance premium (MIP) risk pricing (FHA, 2014c).

Following the 2013 restrictions on lump-sum draws and the shift toward managed initial loan

disbursements, lending options permitting the borrower to take future draws at ﬁxed interest rates

became a concern affecting the ﬁnancial sustainability of both the FHA HECM insurance program

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

55Cityscape

and Ginnie Mae HMBS program. Given the difﬁculties that lenders, issuers, and investors may

encounter in managing interest rate risk with future draws for ﬁxed-rate HECMs, Ginnie Mae

initiated the restriction by prohibiting the securitization of these loans in its HMBS pools (Ginnie

Mae, 2014a, 2014b). Following Ginnie Mae’s decision, FHA restricted provision of insurance on

ﬁxed-rate HECMs to single disbursement, lump-sum cash draws as the sole draw mechanism for

these borrowers to choose at the closing of the loan. FHA’ s insurance restriction on ﬁxed-rate

HECMs with future payments also eliminated the single-disbursement, lump-sum-payment option

for adjustable-rate HECM loans (FHA, 2014c). As a consequence, such changes have attracted

borrowers with higher mandatory obligations to use the ﬁxed-rate HECM loan option in seeking a

single, full draw in meeting their larger ﬁnancial needs.

Modied Mortgage Insurance Premium Structure

MIP is an essential component of the ﬁnancial sustainability of the HECM insurance program.

Borrowers’ MIP payments fund the program and constitute the immediate ﬁscal resources that

the MMI Fund uses in paying out insurance claims to lenders. The MIP structure for HECM loans

originally provided an initial MIP at 2 percent of the maximum claim amount (MCA) and 0.5

percent of MCA for the monthly MIP. Such payments are accrued and paid by the borrower when

HECM matures (FHA, 2010a). Following the restructuring of the HECM Saver and HECM Stan-

dard products, FHA sought risk-based pricing, depending on the borrower’s initial disbursement as

illustrated in exhibit 4.

The new premium structure has given the borrower a ﬁnancial incentive to draw less than 60 per-

cent of the principal limit on his or her HECM loan (HUD, 2015a). As such, borrowers with high

mandatory obligations compensate FHA for the added risk that they impose on the MMI Fund for

their high ﬁrst-year draw through a higher upfront MIP. Thus, the MIP restructuring has further

minimized default risk by incentivizing borrowers to make lesser draws while compensating the

MMI Fund for the risk should borrowers withdraw more than 60 percent of the principal limit.

Exhibit 4

HECM MIP Structure

Initial Disbursement at Closing and During

the First 12-Month Disbursement Period

Initial MIP

(%)

Annual MIP

(%)

Amounts of 60% or less of the principal limit 0.50 1.25

Amounts greater than 60% of the principal limit 2.50 1.25

HECM = Home Equity Conversion Mortgage. MIP = mortgage insurance premium.

Note: MIP cost is calculated from the maximum claim amount.

Source: FHA (2014e)

Affordable Financing and the HMBS Program

For senior homeowners to effectively access their housing wealth, affordable ﬁnancing is a

necessity. Without affordable ﬁnancing, HECM is constrained in meeting the needs of the elderly

as an alternative way to access the ﬁnancial assets in their homes. The ﬁnancial sustainability

of the HECM program depends on cost-effective access to ﬁnancing for senior borrowers. The

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

corresponding HMBS program facilitates access to affordable housing ﬁnance for these homeown-

ers. Through the HMBS program, Ginnie Mae furthers the ﬁnancial sustainability of HECM as

senior homeowners seek the option to continue living in their home while affordably accessing

their equity without making repayments.

When Ginnie Mae created the HMBS program in 2007, a limited secondary market for reverse

mortgages existed. (Ginnie Mae, 2007) Only a handful of private-label securitizations of reverse

mortgage cashﬂows had occurred and would soon be bludgeoned by the Great Recession.

Fur-

thermore liquidity for FHA-insured reverse mortgages was not met through securitization. Instead,

whole-loan purchases by investors in HECM loans attempted to sustain lenders with access to

investment from capital markets. Yet, since the inception of the HECM insurance program, Fannie

Mae has made most purchases through on-book holdings of FHA-insured reverse mortgages.

With the GSEs not securitizing reverse mortgages, Ginnie Mae met a unique challenge by advanc-

ing ﬁnancial sustainability for HECM loans through the pioneering creation of HMBS and the

resulting development of a broad secondary mortgage market for HECM loans.

HMBS was the ﬁrst nonprivate HECM securitization, which furthered the development of a robust

secondary market for HECM loans (Agbamu, 2010). The beneﬁts of this developed secondary mar-

ket were clear because it served two key purposes in facilitating growth for HECM loans through

increased investment and expanded access to affordable ﬁnancing for borrowers and lenders

through additional capital inﬂows into securitized pools. With Ginnie Mae and its explicit full-faith

and credit guarantee from the U.S. government on the timely payment of principal and interest,

HMBS stimulated development of a strong secondary reverse mortgage market. HECM securitiza-

tion expanded investment from global capital markets into securitized HECM loans.

The resulting liquidity helped diminish the costs of HECM loans for lenders accessing capital and

helped provide affordable ﬁnancing to senior homeowners. Signiﬁcant obstacles and risks had

to be overcome in the design and servicing of the HMBS program. These obstacles were resolved

through several innovations in reverse mortgage securitization that would help the program

achieve its primary objective in facilitating aging in place with enabled access to affordable ﬁnanc-

ing for many senior homeowners.

The Unconventional in Reverse Mortgage Securitization

Creating a new and atypical ﬁnancial product with broad investor appeal was viewed as a daunt-

ing, if not an impossible, task to achieve. HMBS needed to incorporate several innovations to

In August 1999, Lehman Brothers Holdings Inc. created the ﬁrst securitized reverse mortgage transaction SASCO 1999-

RM1 (Zhai, 2000). Proprietary reverse mortgages had no federal insurance and required structuring in classes to mitigate

nonrepayment risks (Szymanoski, Enriquez, and DiVenti, 2007). Until its demise, Lehman Brothers would securitize

ﬁve total proprietary reverse mortgages in the Structured Asset Securities Corporation (SASCO) series. Bank of America’s

Mortgage Equity Conversion Asset Trust Corporation securitized the ﬁrst HECM loans through three securitizations in 2006

and three subsequent securitizations in 2007 (Herzog, 2007). In addition, Deutsche Bank USA and RBS Greenwich Capital

Markets Inc. also issued a series of HECM securitizations from 2006 to 2007 (CFPB, 2012).

According to quarterly ﬁnancial disclosures, Fannie Mae’s purchase share of HECM issuance dropped from 90 percent

from 2008 to the ﬁrst quarter of 2009 to less than 1 percent in the third quarter of 2010 (SEC, 2008–2010).

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

57Cityscape

overcome challenges, build conﬁdence, and meet—if not exceed—investors’ expectations. Such

dispiriting challenges would present signiﬁcant obstacles. The obstacles would form tangible barri-

ers that had the potential to limit HMBS implementation.

For HMBS to be effective, the program needed to assure investors of the quality and safety of the

new and distinct security. Investor assurance presented a challenge because HECM loans and

reverse mortgage securitization had the opposite collateral and credit issues compared with the

standard forward mortgages and counterpart securities (Zhai, 2000). Thus, simple adaptation to

the forward mortgage-backed securities (MBS) design with the underlying HECM loan collateral

posed several challenges. Navigating through such difﬁculties proved essential to achieving success

for the HMBS program in advancing HECM’s ﬁnancial sustainability.

The different nature of the underlying HECM collateral for HMBS presented issues in terms of time

horizon, cashﬂow, and servicing. To resolve the issues, the HMBS structure and protocol had to

conform to the underlying collateral’s cashﬂow and navigate around the challenges the underlying

HECM loans presented. The challenges—albeit signiﬁcant—presented opportunities to innovate in

the design of HMBS and the optimization of program protocol for ease of investment and servicing.

The open-ended maturity of the HECM loan posed the “most critical cashﬂow risk factor […]

arising from interest rate and property value uncertainties” (Szymanoski, Enriquez, and DiVenti,

2007: 14). HECM’s negative amortization structure meant a growing loan balance would become

due and payable at the unscheduled event of the borrower’s death, move, default, or prepayment.

Should the borrower live longer than the actuarial tables, then the growing principal with accruing

interest payments presented risks to issuer solvency, especially in terms of pushing against the

ceiling imposed by the MCA. In these instances, issuers and their subservicers lost incentive in

continuing to administer HMBS pools. Such crossover risk

posed a substantial barrier to growing

issuer involvement in the program.

The cashﬂow of the HECM structure presented another challenge to HMBS securitization.

Although the traditional forward MBS had a single cashﬂow from borrower to investors, HMBS had

two cashﬂows (Szymanoski, Enriquez, and DiVenti, 2007): (1) borrowers received a cashﬂow each

time they withdrew on their home equity, and (2) investors received a cashﬂow each time they re-

ceived interest. The HMBS dual cashﬂow required funding each time the borrower drew cash from

his or her housing wealth. The requirement for additional draws posed a signiﬁcant barrier because

investors were making a funding commitment far greater than their initial investment compared

with investing in forward MBS. Further reliance on secondary market actors, whether investors or

issuers, would add additional pressures in having the needed capital reserves to sustain longstand-

ing servicing of securitized HECM loan pools (Ginnie Mae, 2011c). Such a commitment required

signiﬁcant foresight if not clairvoyance on these actors’ parts. As a result, cashﬂow was a signiﬁcant

constraint in terms of attracting investment and servicing and also in terms of the fundamental

design of HMBS (Ginnie Mae, 2011d).

Crossover risk occurs when the outstanding balance exceeds the home’s value before the loan settles. For HECM loans,

this crossover risk stems from a conﬂuence of factors related to interest rates, house prices, and mortality (Wang, Huang,

and Miao, n.d.).

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

The pooling and administration of the untested HMBS had to achieve operational excellence and

encourage issuers and subservicers to work with this distinct and ﬂedgling security. Servicing

HMBS required long-term accounting from issuers and subservicers. The aforementioned negative

amortization meant issuers had to manage growing HMBS pools in terms of repayment of princi-

pal, accrued interest payments, and fees. As a consequence, HMBS issuers and their subservicers

would not administer the diminishing principal balances and monthly interest rate payments to

investors as had been done traditionally with forward MBS. Rather, HMBS issuers would have to

adapt to growing principal balances, accruing interest, and the payout of FHA MIPs and Ginnie Mae

guaranty fees. In addition, issuers had to develop new mechanisms in determining when HMBS

became due and payable, a novelty given the unscheduled maturity inherent to HECM loans.

Strategic management of the nature of the HECM loan in terms of time horizon, cashﬂow, and

servicing helped position the HMBS program for success. The rationale for the HMBS loan was

compelling, especially in terms of the much-needed liquidity the product would provide in a

new secondary market, bolstered by the full-faith and credit guarantee of Ginnie Mae and FHA

insurance. The HMBS program would provide wide-scale securitization of HECM loans, serving

a unique purpose in the provision of much-needed liquidity to the secondary reverse mortgage

market. The outlined areas of difﬁculty, however, had the potential to avert the program’s success.

The resulting HMBS would certainly have a new and different cashﬂow structure if securitized at

scale. It would also further diversify the ﬁxed-income, MBS investment space. Innovations in the

design and administration of HMBS, however, would largely determine the program’s success in

promoting ﬁnancial sustainability in terms of affordable ﬁnancing for HECM.

Innovations in the HMBS Program

HMBS required several innovations to overcome the aforementioned challenges inherent to

the nature of the HECM loan. Programmatic innovations in securitization invigorated efforts to

deepen liquidity and promote the development of a secondary reverse mortgage market. Such

breakthroughs, outlined in exhibit 5, stimulated both issuer and investor participation in securitiz-

ing, servicing, and investing in HMBS. These changes consequently helped ensure that the HMBS

program achieved success in facilitating affordable ﬁnancing for senior homeowners deciding to

liquidate their housing wealth and age in place.

The full-faith and credit guarantee that the U.S. government provided through Ginnie Mae was a

promising start in developing the HMBS program. The guarantee, combined with FHA’ s insurance

on the underlying HECM collateral, helped leverage HMBS in terms of investor protection related

to issuer and credit risks. In the event of borrower and issuer default, the Ginnie Mae guarantee

ensured investors would still receive their principal investment and also their accrued interest-rate

revenues. The guarantee, combined with securitization, would deepen investment of global capital

into HECM loans. Ampliﬁed capital inﬂows into HMBS provided increased liquidity into the

HECM program, enabling lenders to access lower-cost ﬁnancing and pass affordability along to the

borrower in the form of lower interest rates. From the outset, the guarantee and insurance would

Maturity is triggered by the borrower’s death, move-out by the borrower from the collateralized principal residence, or

prepayment in the instances of a borrower’s opting voluntarily to repay his or her outstanding HECM loan.

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

59Cityscape

Exhibit 5

HMBS Innovations in Promoting Sustainable Financing for HECM

Innovation Purpose Effect

Securitization of HECM loans

through HMBS

Channels investment into

purchase of securitized HECM

loan pools with unique cashﬂow

structures

Reduces borrowing costs for

lenders and promotes affordable

ﬁnancing for borrowers

Full-faith and credit guarantee by

U.S. government on HMBS by

Ginnie Mae and insurance for un-

derlying HECM collateral by FHA

Ensures investors receive timely

principal and interest payments

from underlying HECM collateral

• Protects investors on issuer

(Ginnie Mae) and creditor (FHA)

risk

• Encourages investment of global

capital into HMBS products

Securitization of HMBS participa-

tions

over HECM whole loans

Securitizes borrowers’ draws

instead of MCA on underlying

HECM collateral

Provides increased liquidity and

reduces future draw risk for

external funding with compo-

nents of HECM loans pooled into

multiple securities

Mandatory repurchase event at

98% of MCA

As a deﬁnitive timeline event,

triggers payout to investors

through assignment of active

loan to FHA

Results in issuers repurchasing

participations related to HECM

loan after it has reached 98% of

MCA

Multiclass HREMIC structures Customizes HECM collateral in

classes based on principal bal-

ances, interest rates

Expands liquidity through cus-

tomizable structures catered to

investor preferences

FHA = Federal Housing Administration. HECM = Home Equity Conversion Mortgage. HMBS = HECM mortgage-backed securities.

HREMIC = HMBS real estate mortgage investment conduit. MCA = maximum claim amount.

Participations generally consist of advances made to borrowers, monthly insurance premiums paid to FHA, guaranty fees paid to

Ginnie Mae, servicing fees, and accrued interest (Ginnie Mae, 2015a).

strengthen investors’ conﬁdence in the event their capital diminished from reduced principal and

interest rate payments due to borrowers’ inability to meet loan obligations or issuers’ mishap. Such

preconditions for the HMBS program would provide a needed foundation for a well-designed

HMBS with proper securitization techniques to succeed.

Through the HMBS program, Ginnie Mae pioneered a new approach to reverse mortgage securitiza-

tion, which differed from the conventional approach in which investment banks purchased private-

label whole loan reverse mortgages from lenders for pooling and securitization. In the Ginnie Mae

HMBS securitization model, investors were responsible for funding future draws in the resulting

securities (CFPB, 2012). As such, proprietary reverse mortgage securities had a funding account

embedded in their structures speciﬁcally drawn on when borrowers obtained advances on their

home equity. With the Ginnie Mae approach, investors would purchase securitized components

of HECM loans and issuers advanced funds to future draws for borrowers. Future draws would be

securitized and pooled by issuers for future sale and additional investment. The use of HECM loan

components for securitization would be a substantive design breakthrough that streamlined HMBS

in terms of administration for issuer servicing and speciﬁcity in investor decisionmaking.

The HMBS structure fundamentally needed to incorporate ﬂexibility and ensure greater certainty

amidst a HECM loan with several daunting, if not unwelcoming, challenges. As opposed to secu-

ritizing whole HECM loans, the Ginnie Mae approach targeted HECM loan components. Issuers

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

securitized individual borrower draws, termed participations in the HMBS program.

Through partici-

pations, only part of the HECM loan was securitized. Because of this technique, issuers were able to

pool components of whole HECM loans. As a result, HMBS pools had a “one-to-many relationship”

with one HECM loan having many participations in various HECM-backed securities (Ginnie Mae,

2015a). Participations included accrued interest, servicing fees, FHA’ s MIPs, and Ginnie Mae’s guar-

anty fee as securitized participations (Ginnie Mae, 2015a). Issuers pooled participations among those

with similar characteristics, such as interest rates (ﬁxed versus monthly and annual adjustable, and so

on). Such pooling with units beneath the scale of HECM whole loans gave issuers and investors the

advantage of additional speciﬁcity in the securitization process and investment decisionmaking.

The participations model had numerous beneﬁts, including targeted investment and pooling speci-

ﬁcity. Should the borrower make additional draws on the same HECM loan, termed “tails” in the

industry, then the resulting draw would be eligible for securitization as a new participation to be

placed into a new pool of cohorts (Katz and Birdsell, 2014). The securitization of tails as separate

participation components was critical to the success of the HMBS program. In this respect, it gave

HMBS issuers ﬂexibility and adjustability in optimizing pool structures with added granularity

in servicing. For example, in FY 2015, Ginnie Mae securitized 2,847,842 participations with an

outstanding principal balance of $8.714 billion. Assuming all participations are the same,

the

average size of participations accordingly was small, calculated in this case at $3,367.96.

Securi-

tizing smaller components of HECM loans with greater differentiation enhanced liquidity

to the

secondary mortgage market, which helped further the ﬁnancial sustainability of the HECM. It also

supported issuers in funding cash advances made to HECM borrowers.

The use of participations in the HMBS program was innovative because it provided a more speciﬁc

HMBS subcomponent unit for ease in pooling, servicing, and investing. Participations also helped

prevent investors from funding future draws when borrowers made more than an initial draw

on their loan. Instead, issuers funded additional cash draws executed by borrowers in the HMBS

program. Through the participations model, issuers were better supported in meeting the HMBS

funding requirement. The creation of new and subsequent participations enabled issuers to

securitize cashﬂows separately. Given that subsequent participations were often smaller payments,

it helped reduce issuers’ ﬁnancial burden by advancing funds for subsequent draws. The participa-

tions model gave issuers and investors additional investment certainty and control in the HMBS

securitization process. As a result, participations helped further the ﬁnancial sustainability of

HECM through increased liquidity and the resulting lower-cost ﬁnancing for senior homeowners.

In advancing the ﬁnancial sustainability of FHA-insured reverse mortgages, the actors involved

in the securitization process of participations were essential. The issuers and subservicers

Participations generally consist of advances made to borrowers, monthly insurance premiums paid to FHA, guaranty fees

paid to Ginnie Mae, servicing fees, and accrued interest (Ginnie Mae, 2015a).

This calculation is used to gauge average participation size. It should be rightly noted, however, that all participations are

not equal.

In FY 2014, Ginnie Mae securitized 2,587,323 participations, with an outstanding principal balance of $7.121 billion.

The average participation amount would be an even smaller $2,500.49.

The customization of securitized HECM loans through participations enhances liquidity to this secondary mortgage

market because these smaller units are pooled compared with entire loans.

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

61Cityscape

administratively were critical to the success of the HMBS program beginning from the pooling of

participations into HMBS to paying out interest payments and fees to investors, FHA, and Ginnie

Mae. From the time the HECM loan was dispersed through the execution of additional draws until

the time when the HECM loan became due and payable, the success of issuers and subservicers

not only affected the effectiveness of the HMBS program but also determined the sustainability of

FHA’s HECM insurance program and inﬂuenced Ginnie Mae’s ﬁnancial health.

As such, issuers and subservicers had a range of duties required to successfully service HMBS,

some distinct, if not different, from those of MBS. Of course, in a way that was similar to how

they monitored MBS, they monitored borrower compliance and managed default, but they also

monitored the atypical events that triggered maturity for HMBS, the so-called morbidity, mobility,

and prepayment events when payments became due for borrowers and investors received their

principal and interest payments. The burden on issuers and subservicers is especially important as

the unscheduled payment timeline of HECM loans determines when issuers and investors receive

payments and reimbursement on their advances and investments, respectively.

Because borrowers did not make monthly payments on principal and interest, issuers and

subservicers were required to calculate and account for the state of their HMBS pools monthly.

Although the calculations were long term, given the negatively amortizing nature of HMBS, issuers

have to closely monitor and manage accruals and be ready should HECM loans become due and

payable. Issuers also were required to simultaneously fund out-of-pocket draws to ensure borrow-

ers received their liquidated housing wealth payments while passing through monthly MIPs and

guaranty fees to FHA and Ginnie Mae, respectively (Ginnie Mae, 2015a). As a consequence, each

of these payments required effective accounting. Errors in tabulations risked issuer default through

portfolio mismanagement, which, consequently, threatened the ﬁscal soundness of the HMBS

program and also Ginnie Mae. Thus, issuers were required to be diligent in their accounting for

their outstanding HMBS pools and related participations. For oversight, accounting developments

were reported to Ginnie Mae for monitoring and risk assessment (Ginnie Mae, 2011e).

As evidenced, issuers and subservicers were crucial to the success of the HMBS program. Their

role did not stop here, however; it extended beyond pooling and the accounting for HMBS pools.

Perhaps most important in the life of a HECM-backed security, when a HECM loan became due

and payable, the issuer was to repurchase all participations related to that loan. Buyouts of par-

ticipations from the HMBS pools ensured investors received their principal and interest payments;

however, it involved ﬁnancial uncertainty from the issuer’s perspective. As issuers advanced funds

to buy out the participations, they were unsure if they would be adequately reimbursed in a timely

fashion. Such requirements for issuers to fund borrower advances and buy out participations

explained why Ginnie Mae mandated higher net worth requirements for HMBS issuers compared

with single-family (SF) counterparts

(Ginnie Mae, 2011a). Being an HMBS issuer is cash intensive.

Because of servicing requirements, for issuers to be ﬁnancially sustainable they must have had enough

Should Ginnie Mae determine an issuer default has occurred, it must take over the portfolio from the defaulted issuer

unless another issuer acquires the defaulted pools. This takeover can result in signiﬁcant expenditure of ﬁnancial resources.

For the HMBS program, an issuer must have a minimum net worth of $5,000,000 compared with $2,500,000 for SF MBS

issuers (Ginnie Mae, 2011a, 2010, 2008).

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

capital to fund borrower advances and execute buyouts. They also must be reimbursed in the event

of borrower default or crossover risk. The assignment option adapted from the HECM insurance

program to the HMBS program provides issuers and investors added assurance.

The assignment option feature was not found in conventional reverse mortgages (Szymanoski,

Enriquez, and DiVenti, 2007). With accruals on HECM loans stopping only when maturity and

prepayment occurred, lenders typically suffered losses, without insurance, in the event of borrower

nonrepayment. Should the HECM loan’s debt grow to a point at which it exceeded the value of

the property, crossover risk—inherent to these loans—necessitated the option for lenders to assign

the loan to FHA when the total loan balance was equal to or greater than 98 percent of the MCA.

When this occurred, lenders assigned the loan to FHA, whereby HUD assumed all responsibili-

ties in servicing the loan going forward. After the loan was assigned to FHA, lenders received an

insurance claim equal to the loan balance up to the MCA (Szymanoski, Enriquez, and DiVenti,

2007). Such assignment was important as the HECM loan actually became terminated—due to the

borrower’s death, move out, default, or reﬁnancing—after assignment to FHA.

The MCA assignment, at or greater than 98 percent of the HECM MCA, was vitally important

to the HMBS program.

Enabled by the sale of loans by primary market lenders, Ginnie Mae

mandated HMBS issuers to assign these loans to FHA. After the assignment was triggered, the

“Mandatory Purchase Event” required issuers to purchase all participations from the nearly full

MCA HECM loan (Ginnie Mae, 2011b). If loans became successfully assigned to FHA, the issuers

received mortgage insurance claim payments, providing reimbursement on their advancement

of funds to liquidate the participations from HMBS pools (Ginnie Mae, 2011b). In addition, the

Mandatory Purchase Event also provided HMBS investors with enhanced payment predictability

because, from their perspective, the loan had terminated, given its payout funded by the issuer

(Ginnie Mae, 2015a). The MCA assignment rule also ensured issuers only pool participations from

insured FHA loans (Ginnie Mae, 2015a).

Assignment was not a cure-all for issuer concerns about cost recovery for funds advanced to

purchase participations from the HMBS pools. If the HECM loan was ineligible for assignment

to FHA, then the issuer did not receive compensation from FHA. Being unassignable due to bor-

rower default, issuers had to either hold onto the loan until maturity or sell the loan to another

FHA lender-servicer (CFPB, 2012). In such instances, the issuer was able to recover some of its

investment through the foreclosure process and then would ﬁle an insurance claim with the HECM

insurance program for up to the MCA of the remaining debt. With crossover risk growing as the

issuer held the loan, issuers were in a difﬁcult situation in continuing to service loans, especially

because the time spent servicing participations only increased their costs. As a result, the issuers

bore these risks to encourage continued investment in the HMBS program and continued liquidity

in this secondary market.

The payment scenarios for HECM were publicly reported in late 2007 to have a 90-percent frequency of borrowers

paying the balance of their mortgage balance through home sale, reﬁnancing, or other sources of funds: 9 percent of HECM

loans being successfully assigned to FHA and 100 percent of outstanding accrued balance being paid off and 1 percent of

HECM loans having FHA issuing insurance claims when proceeds from home sales are less than the funded balance (Burch,

2007).

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

63Cityscape

Another innovative source of liquidity into the secondary HECM market came from HMBS eligibil-

ity to be resecuritized into real estate mortgage investment conduits (REMICs). Since 2008, Ginnie

Mae allowed HMBS to serve as collateral in REMICs. HMBS REMICs (HREMICs) were HMBS

repackaged into multiclass structures with similar groupings, whether principal balances, interest

rates, average lives, prepayment characteristics, or ﬁnal maturities. HREMICs were important

because they provided further liquidity to the secondary reverse mortgage market by allowing

various investors with different investment horizons, risk-reward preferences, and asset-liability

requirements to invest in ﬁnancial products uniquely suited for their portfolio needs.

As illustrated in exhibit 6, the HREMIC issuance contributed signiﬁcantly in channeling capital into

HECM, even exceeding in some months regular HMBS issuance. The HREMICs components were

largely grouped into passthrough and interest-only structures with sequential

structures being his-

torically employed to a lesser extent. Classes included both ﬁxed-interest rate and adjustable-interest

rate ﬂoater structures. Through strategic groupings of these classes, HREMICs gave investors the

ability to target their investments into substituent

structures. Investors leveraged their investments

with the purpose of exceeding returns in components rather than in broader and less-speciﬁed

HMBS pools of participations. The customization of HMBS into HREMIC structures underscored

Ginnie Mae’s innovative contribution to the HMBS program in furthering investor speciﬁcity with

increased capital ﬂow into HECM. The resulting increased liquidity from HREMICs allowed senior

homeowners to access lower-cost ﬁnancing when accessing equity in their homes through HECM.

Exhibit 6

HMBS and HREMIC Monthly Issuance, March 2014–December 2016

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

Monthly issuance ($)

Mar-14

Apr-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

HMBS

Month

HREMIC

HMBS = HECM (Home Equity Conversion Mortgage) mortgage-backed securities. HREMIC = HMBS real estate mortgage invest-

ment conduits.

Source: Ginnie Mae (2017)

The HSEQ breaks up different payment streams into levels of seniority and subordination, which enables investors to

tailor their HREMIC investment to assorted time horizons and repayment levels.

The substituent groupings are classes of speciﬁed, alike collateral pooled into HREMIC products.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Assessing Future Challenges for the HMBS Program

The HMBS program achieved much success in securitizing HECM loans and providing liquidity to

the market of reverse mortgage products. Exhibit 7 shows that hundreds of millions of dollars of

HECM loans were securitized in HMBS every month. The success was a testament to Ginnie Mae’s

ability to resolve numerous issues through several programmatic innovations to HMBS. The result

was the development of a new secondary reverse mortgage market worth close to $64 billion that

did not exist less than a decade ago. Despite accomplishments in facilitating access to affordable

ﬁnancing for many senior homeowners seeking to access their housing wealth, challenges persisted

in ensuring that continued liquidity provided through HMBS to HECM existed.

The HMBS program posed disproportionate risk despite its small share of Ginnie Mae’s overall

MBS-guaranteed portfolio. Although the HMBS portfolio had experienced steady growth since

its inception to comprise more than 333,000 loans, recent month-to-month growth and issuance

has started to slow (Ginnie Mae, 2015b; Oliva, 2016). This concerning trend of slowing portfolio

growth could be attributed to impending maturities for the HECM loan bulge, coming from the

demand surge following the Great Recession, approaching the Mandatory Purchase Event thresh-

old for assignment of loans to FHA. In FY 2015, HMBS buyouts approached close to $2.75 billion,

signiﬁcantly higher than the voluntary, partial, and other payments in previous years (Ginnie Mae,

2015b; Oliva, 2016). HMBS participation liquidation rate concurrently reached its highest point in

the program’s history, registering close to 15.2 percent in August 2015 (Ginnie Mae, 2015b; Oliva,

2016). The ﬁgures may indicate possible headwinds, with forthcoming projections estimating a

Exhibit 7

HMBS Monthly Issuance, September 2011–January 2016

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

HMBS monthly issuance ($)

Month

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Treasury M/M Treasury 1/1 LIBOR M/M LIBOR 1/1 Fixed

1/1 = Annual Index. HMBS = HECM (Home Equity Conversion Mortgage) mortgage-backed securities. LIBOR = London Interbank

Offered Rate. M/M = Monthly Index.

Source: Ginnie Mae (2016)

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

65Cityscape

growth in Mandatory Purchase Events from 2016 to 2018. Such projections indicated the potential

for $32.6 billion in unpaid principal balance to be bought out by issuers from calendar years 2016

to 2020 (Ginnie Mae, 2015b; Oliva, 2016).

The slowdown in HMBS portfolio growth also reﬂected FHA’ s recent changes to the HECM insur-

ance program to advance its ﬁnancial soundness. In the institution of programmatic changes to pro-

mote HECM’s long-term ﬁscal solvency in the MMI Fund, the trend toward increased modiﬁcations

and reﬁnements resulted in reduced borrower demand. For example, reverse mortgage industry

analysts recently assessed the ﬁnancial assessment requirement for prospective HECM borrowers to

“certainly reduce loan volume for the foreseeable future” (New View Advisors, 2015: 1). As such,

the transition to foster increased ﬁscal viability for the HECM insurance program may have reduced

borrower demand. Such changes ultimately had the potential to hurt production. It is likely that

the resulting reduced borrower demand places increased strain on issuers in incentivizing servicing

for HMBS. Such stress on HMBS servicing risked fewer issuers in the secondary market and could

have impeded investment in these securities. In the event the analysts’ assessments come to fruition,

liquidity to the securitized HECM market could be signiﬁcantly reduced.

Regulatory uncertainty in the primary market has been a key risk to the stability of the HMBS

program. As a consequence, policy uncertainty has contributed to HMBS issuers leaving the

market. Multiple HMBS issuers speciﬁcally have exited due to declining incentives.

Many exiting

issuers were market leaders who signiﬁcantly invested in becoming successful at the unique terms

of HMBS servicing and embraced their cash-intensive role in advancing funds for borrower draws

and participation buyouts. Yet, issuers have been overburdened in executing their HMBS duties

in an environment of uncertainty. Despite the surge in availability of HECM portfolios from exited

issuers, however, they have been transferred successfully to other issuers. Such transfers high-

lighted the resilience of HMBS issuers in confronting such risks and continuing their essential role

in contributing to the success of the HMBS program. Nonetheless, these trends also risked further

concentration of the HMBS issuer base.

The concentration of HMBS issuers has long stemmed from the product’s being niche, notably so

compared with forward MBS. Capital requirements to fund the Mandatory Purchase Event buyouts,

however, have contributed to limiting increased issuer participation. The issuer concentration, com-

bined with reduced demand, explains why the HMBS issuer market had few new entrants. Exhibit 8

shows that only 5 of the 17 total HMBS issuers made up close to 80 percent of the total monthly issu-

ance in 2015 compared with 28 of the 328 total SF MBS issuers with the same 80 percent of similar

market share. In addition, only 9 HMBS issuers were active in securitizing new originations. These

numbers show a marked improvement since 2012, when only 5 issuers were actively securitizing

new participations (CFPB, 2012); however, such high concentration was cause for concern.

Should the two aforementioned trends of increasing loans reaching the Mandatory Purchase

Event and regulatory uncertainty continue, the overall ﬁnancial sustainability of HECM could be

The number of HMBS issuers buying loans and bundling securities shrank considerably with the departure of Wells Fargo

& Company, Bank of America Corporation, and Financial Freedom in 2011 and MetLife, Inc., in 2012 (CFPB, 2012).

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Exhibit 8

Ginnie Mae Single-Family MBS and HMBS Issuer Outstanding Issuance Market

Share, December 2014–January 2016

Ginnie Mae Single-Family

MBS Issuer

Market Share (%)

Ginnie Mae

HMBS Issuer

Market Share (%)

Wells Fargo Bank, N.A. 26.59 Nationstar Mortgage, LLC 25.54

J.P. Morgan Chase Bank, N.A. 8.68 Reverse Mortgage Solutions,

Inc.

15.29

Pennymac Loan Services,

LLC

5.00 Urban Financial of America, LLC 12.93

Bank of America, N.A. 4.74 Wells Fargo Bank, N.A. 12.00

Nationstar Mortgage, LLC 3.97 American Advisors Group, Inc. 7.40

U.S. Bank, N.A. 3.91 Reverse Mortgage Funding, LLC 6.95

Freedom Mortgage Corpora-

tion

2.80 Live Well Financial, Inc. 4.12

Lakeview Loan Servicing, LLC 2.72 Bank of America, N.A. 3.47

Quicken Loans Inc. 2.61 Liberty Home Equity Solutions 3.45

Ocwen Loan Servicing, LLC 1.58 Generation Mortgage Company 2.97

USAA Federal Savings Bank 1.56 Finance of America Reverse,

LLC

2.86

Carrington Mortgage Services 1.52 Onewest Bank, N.A. 1.07

PHH Mortgage Corporation 1.32 Sunwest Mortgage Company,

Inc.

0.98

Branch Banking and Trust

Company

1.27 Plaza Home Mortgage, Inc. 0.74

Pingora Loan Servicing, LLC 1.14 CIT Bank, N.A. 0.19

Ditech Financial, LLC 1.13 Silvergate Bank 0.04

Suntrust Mortgage, Inc. 1.12 Cherry Creek Mortgage Co., Inc. 0.02

Outstanding Issuance Average $1,470,657,789,781 Outstanding Issuance Average $63,279,623,283

HMBS = HECM (Home Equity Conversion Mortgage) mortgage-backed securities. MBS = mortgage-backed securities.

endangered.

The unsustainability could occur through additional HMBS issuer exits or—worse—

through homeowners’ defaults.

The risk is especially relevant in the current post-recession

paradigm in which “too big to fail” is an often-invoked concern.

New entrants of successful HMBS issuers could help reduce the high concentration. Yet, obstacles

exist for both current and potential issuers that discourage entities from becoming HMBS issuers,

aside from those already discussed. Exhibit 9 shows that, among the six issuers that operated in

both the SF and HECM MBS space, only one is more specialized in the reverse portfolio compared

with the SF portfolio. The concentration not only underscores the specialized nature of the HMBS

environment, but it also illustrates the magnitude of incentives involved in participating in the SF

versus HMBS issuer market.

An additional overall trend is the increase in nonbank institutions as issuers. Issuer concentration in the HMBS program

has also been accompanied by a similar trend mirrored in the overall MBS market. The increase in the share of nonbank

institutions as Ginnie Mae issuers is relevant to HMBS as well. As a consequence, Ginnie Mae has instituted capital

requirements for nondepository institutions, such as nonbanks and credit unions, requiring a total assets ratio of 6 percent

or greater compared with 10 percent or greater of total assets for depository institutions, such as banks and thrifts (Ginnie

Mae, 2011e).

In the case of major issuer default, very few issuers would take on subservicing. Ginnie Mae master subservicers

potentially would conduct such servicing.

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

67Cityscape

Exhibit 9

Ginnie Mae Issuance by Unpaid Principal Balance for Issuers of HMBS and SF

MBS, December 2014–January 2016

Ginnie Mae Issuer HMBS ($) SF MBS ($)

Nationstar Mortgage LLC 16,162,974,289 58,385,989,654

Wells Fargo Bank, N.A. 4,396,764,866

391,118,634,380

Live Well Financial, Inc. 2,181,471,638 23,132,714

Bank of America, N.A. 1,880,234,859 69,731,451,402

Plaza Home Mortgage, Inc. 116,857,788 6,996,301,929

Cherry Creek Mortgage Co., Inc. 14,183,564 226,714,629

HMBS = HECM (Home Equity Conversion Mortgage) mortgage-backed securities. MBS = mortgage-backed securities. SF = single

family.

Why participate as a specialized HMBS issuer, especially when the likelihood of managing a bigger

portfolio rests within the SF MBS? This quintessential question is one a prospective issuer may ask

when deciding whether to join either market. The question emphasizes the fundamental dilemma

in expanding the HMBS issuer base. Certainly the portfolio ranges of each market could inﬂuence a

prospective issuer when comparing the $1.47 trillion SF market with the $63.3 billion HMBS market.

Further, perhaps issuers would prefer to participate in a more certain SF regulatory environment than

in HECM, with uncertain regulatory changes potentially on the horizon. Yet, an issuer may view spe-

cialization in HMBS as potentially more proﬁtable for business, given the limited number of competi-

tors. Despite the above conjectures, these observations highlight the need for increased conﬁdence in

the HMBS program among investors, issuers, subservicers, lenders, and borrowers alike.

To adapt the program to mitigate such risks, HMBS may require additional programmatic innova-

tions. In addition to promoting greater certainty in the secondary market to potential primary

market policy changes, further adaptations may require mitigating strain in the HMBS issuer base

and continuing to fortify and further diversify investment into HECM.

Potential ways to consider

strengthening the HMBS program regarding these challenges could include expanding the HMBS

issuer base by incentivizing current SF issuers to successfully expand into HMBS. On the other

hand, it could also involve redesigning the HMBS structure to more equitably fund borrower ad-

vances from sources other than issuers. A funding redesign could also reexamine the conventional

securitization approach with prefunded cash accounts embedded in proprietary reverse mortgage

products. Moreover, further streamlining FHA insurance payments could also limit risks posed by

systemic issuer failure in the event of possible increases of 98 percent MCA assignments to FHA.

Advancing Financial Sustainability for HECM

The Great Recession underscored the importance of HECM as a last resort to support the contin-

ued lifestyles of senior homeowners. It also demonstrated the signiﬁcance of the HECM insurance

program in balancing its mission with the need to advance ﬁscal soundness and ensure the health

of the MMI Fund.

In a recent interview, FHA’s Principal Deputy Assistant Secretary Ed Golding echoed further diversifying HMBS

investment: “One area I would like to explore is whether we can expand the number of investors that ﬁnance reverse

mortgages. It’s not always a natural product to go into Ginnie Mae securities. Ginnie Mae has done a great job of providing

ﬁnancing and it will continue to do so, but it would be beneﬁcial to have a diversiﬁed investor base” (Hicks, 2015: 1).

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

The programmatic changes made by FHA sought to promote sound lending practices and ensure

the viability of the program. As a result, the HECM insurance program sought to reduce borrower

reliance on loans as a crisis management tool and implemented program changes to limit borrower

defaults. FHA’s program modiﬁcations occurred speciﬁcally through restructured HECM loan

products, resulting in encouraging smaller initial borrower draws, minimizing defaults due to neg-

ligence in the payment of tax and insurance fees on the property, and ensuring borrowers have the

ability to meet loan obligations through the ﬁnancial assessment. Reforms to the HECM insurance

program seek to secure the ability of borrowers to age in place while advancing ﬁscal soundness for

the MMI Fund.

At the same time, Ginnie Mae’s HMBS program innovatively expanded and modernized access to

affordable HECM ﬁnancing for senior homeowners. Through several breakthroughs in HECM loan

securitization, including but not limited to the participations model and resecuritization through

the HREMIC, Ginnie Mae provided much needed liquidity through the facilitation of global capital

into HECM. The changes resulted in the ability of senior borrowers to more affordably access their

housing wealth with lower-cost ﬁnancing on their HECM loans. Despite such remarkable progress

in less than a decade, however, challenges remain in further strengthening the HMBS program and

expanding issuer, subservicer, and investor participation. Strengthening the development of the

nascent secondary mortgage market remains unaddressed by regulatory changes in the primary

market. Only when these challenges are addressed can the HMBS program achieve further success

in promoting the ﬁnancial sustainability for HECM.

As the United States experiences an increase in life expectancy and population aging persists as

a profound demographic trend for the country, HECM will continue to be an important source

of funding for senior homeowners seeking to access their housing wealth and age in place.

HECM will continue to serve its essential role as a supplement to income for people of advanced

age seeking alternative ways to maintain their standard of living through advancing the ﬁnancial

sustainability of the HECM insurance and HMBS programs.

Authors

Edward J. Szymanoski was the Associate Deputy Assistant Secretary for Economic Affairs in the

Ofﬁce of Policy Development and Research at the U.S. Department of Housing and Urban Devel-

opment. Dr. Szymanoski passed away while contributing to this article.

Alven Lam is the Managing Director for International Markets at Ginnie Mae at the U.S. Depart-

ment of Housing and Urban Development.

Christopher Feather is a Presidential Management Fellow within the Ofﬁce of Capital Markets at

Ginnie Mae at the U.S. Department of Housing and Urban Development.

Many senior Americans have lived for decades in the same house. In a national survey in 2011, nearly one-half of

Americans ages 65 to 79 had remained in their homes for 20 years or more. More than three in ﬁve Americans age 80 or

older had aged in place with their existing housing arrangement for at least 20 years (JCHS, 2014).

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

69Cityscape

References

Agbamu, Atare E. 2010. “The Engineers of Reverse Mortgage Securitization,” National Mortgage

Professional Magazine 2 (3): 1–2.

Burch, Justin. 2007. HMBS Overview: Ginnie Mae’s Program to Securitize Government Insured Home

Equity Conversion Mortgages. Washington, DC: Ginnie Mae.

Centers for Disease Control and Prevention (CDC). 2013. Healthy Places Terminology. Atlanta:

National Center for Environmental Health.

Congressional Budget Ofﬁce (CBO). 2013. How FHA’s Mutual Mortgage Insurance Fund Accounts for

the Cost of Mortgage Guarantees. Washington, DC: Congressional Budget Ofﬁce.

Consumer Finance Protection Bureau (CFPB). 2012. Report to Congress on Reverse Mortgages.

Washington, DC: Consumer Finance Protection Bureau.

Federal Housing Administration (FHA). 2016. Actuarial Review of the Federal Housing Administration

Mutual Mortgage Insurance Fund HECM and Non-HECM Loans for Fiscal Year 2016. Washington, DC:

Federal Housing Administration.

———. 2015a. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2015. Washington, DC: Federal Housing Admin-

istration.

———. 2015b. Mortgagee Letter 2015-03: Mortgagee Optional Election Assignment for Home Equity

Conversion Mortgages (HECMs) With FHA Case Numbers Assigned Prior to August 4, 2014. Washing-

ton, DC: Federal Housing Administration.

———. 2015c. Mortgagee Letter 2015-09: Home Equity Conversion Mortgage (HECM) Program: Life

Expectancy Set-Aside Growth Rate and Clariﬁcation to Section 3.98 of the HECM Financial Assessment

and Property Charge Guide. Washington, DC: Federal Housing Administration.

———. 2014a. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2014. Washington, DC: Federal Housing Admin-

istration.

———. 2014b. Mortgagee Letter 2014-08: Prohibition on Pooling of HECM Loans That Provide for

Future Draws at a Fixed Rate of Interest: HMBS Prospectus and MBS Guide Revisions. Washington, DC:

Federal Housing Administration.

———. 2014c. Mortgagee Letter 2014-10: Home Equity Conversion Mortgage (HECM) Program:

Prohibition on Misleading or Deceptive Program Descriptions or Advertising and Prohibition on Restriction

of Mortgagor’s Freedom of Choice. Washington, DC: Federal Housing Administration.

———. 2014d. Mortgagee Letter 2014-11: Home Equity Conversion Mortgage (HECM) Program: Limit

on Insurability of Fixed Interest Rate Products Under the HECM Program. Washington, DC: Federal

Housing Administration.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

———. 2014e. Mortgagee Letter 2014-21: Revised Changes to the Home Equity Conversion Mortgage

(HECM) Program Requirements. Washington, DC: Federal Housing Administration.

———. 2014f. Mortgagee Letter 2014-22: Home Equity Conversion Mortgage (HECM) Financial As-

sessment and Property Charge Requirements. Washington, DC: Federal Housing Administration.

———. 2013a. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2013. Washington, DC: Federal Housing Admin-

istration.

———. 2013b. Mortgagee Letter 2013-27: Changes to the Home Equity Conversion Mortgage Program

Requirements. Washington, DC: Federal Housing Administration.

———. 2013c. Mortgagee Letter 2013-28: Home Equity Conversion Mortgage (HECM) Financial As-

sessment and Property Charge Guide. Washington, DC: Federal Housing Administration.

———. 2013d. Mortgagee Letter 2013-45: Delay in Effective Date for Home Equity Conversion Mort-

gage (HECM) Financial Assessment Requirements and Funding Requirements for the Payment of Property

Charges. Washington, DC: Federal Housing Administration.

———. 2012. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2012. Washington, DC: Federal Housing Admin-

istration.

———. 2011. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2011. Washington, DC: Federal Housing Admin-

istration.

———. 2010a. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2010. Washington, DC: Federal Housing Admin-

istration.

———. 2010b. Mortgagee Letter 2010-34: Home Equity Conversion Mortgage Program—Introducing

HECM Saver: Mortgage Insurance Premiums and Principal Limit Factor Changes for HECM Standard.

Washington, DC: Federal Housing Administration.

———. 2009. Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance

Fund HECM and Non-HECM Loans for Fiscal Year 2009. Washington, DC: Federal Housing Admin-

istration.

Ginnie Mae. 2017. “Monthly Issuance Reports.” Washington, DC: Ginnie Mae.

———. 2015a. Mortgage-Backed Securities (MBS) Guide (5500.3, Rev. 1). Washington, DC: Ginnie

Mae.

———. 2015b. HMBS Update: An Evolving Market. Washington, DC: Ginnie Mae.

———. 2014a. All Participant Memorandum 14-04: Pooling of HECM Loans That Provide Future

Draws at a Fixed Rate of Interest (APM 14-04). Washington, DC: Ginnie Mae.

Financial Sustainability and the Home Equity Conversion Mortgage:

Advancing Fiscal Soundness and Affordable Financing for Senior Homeowners

71Cityscape

———. 2014b. All Participant Memorandum 14-08: Prohibition on Pooling of HECM Loans That Pro-

vide Future Draws at a Fixed Rate of Interest; HMBS Prospectus and MBS Guide Revisions (APM 14-08).

Washington, DC: Ginnie Mae.

———. 2011a. All Participant Memorandum 11-01: New Financial Requirements: Home Equity Con-

version Mortgage-Backed Securities (HMBS) (APM 11-01). Washington, DC: Ginnie Mae.

———. 2011b. All Participant Memorandum 11-03: HMBS Mandatory Purchase Events (APM 11-03).

Washington, DC: Ginnie Mae.

———. 2011c. All Participant Memorandum 11-06: Home Equity Conversion Mortgage-Backed Securi-

ties (HMBS): Changes to the Servicing Fee Margin (APM 11-06). Washington, DC: Ginnie Mae.

———. 2011d. All Participant Memorandum 11-10: Home Equity Conversion Mortgage (HECM)

Mortgage-Backed Securities (HMBS): Changes to the Servicing Fee Margin (APM 11-10). Washington,

DC: Ginnie Mae.

———. 2011e. All Participant Memorandum 11-16: Revisions to Institution-Wide Capital Requirements

(APM 11-16). Washington, DC: Ginnie Mae.

———. 2010. All Participant Memorandum 10-02: Increased Net Worth Reminder (APM 10-02).

Washington, DC: Ginnie Mae.

———. 2008. All Participant Memorandum 08-17: Changes to the New Issuer Application and Ginnie

Mae New Worth Requirements (APM 08-17). Washington, DC: Ginnie Mae.

———. 2007. Mortgage-Backed Securities Program Home Equity Conversion Mortgage (HECM) Refer-

ence Guide. Washington, DC: Ginnie Mae.

Herzog, Thomas. 2007. Reverse Mortgages. Washington, DC: Federal Housing Administration.

Hicks, Darryl. 2015. “Edward Golding, HUD: New Principal DAS for Housing Discusses Priori-

ties,” Reverse Mortgage 8 (4): 7–8.

Joint Center for Housing Studies (JCHS). 2014. Housing America’s Older Adults: Meeting the Needs of

an Aging Population. Cambridge, MA: Joint Center for Housing Studies of Harvard University.

Katz, Rob, and Jeff Birdsell. 2014. “The Unique Secondary Lifecycle of the HECM Reverse Mort-

gage,” Secondary Marketing Executive 28 (8): 1–5.

Moulton, Stephanie, Donald Haurin, and Wei Shi. 2014. An Analysis of Default Risk in the Home

Equity Conversion Mortgage (HECM) Program. Columbus, OH: The Ohio State University.

New View Advisors. 2015. HMBS Issuance Strong in April 2015 but Challenges Loom. New York: New

View Advisors LLC.

Oliva, Jason. 2016. “Ginnie Mae Plans To Enhance HMBS Program for Reverse Mortgage Lenders,”

Reverse Mortgage Daily, April 5, 2016.

Szymanoski, Lam, and Feather

Home Equity Conversion Mortgages

Szymanoski, Edward J., James C. Enriquez, and Theresa R. DiVenti. 2007. “Home Equity Conver-

sion Mortgage Terminations: Information To Enhance the Developing Secondary Market,” Cityscape

9 (1): 5–45.

U.S. Department of Housing and Urban Development (HUD). 2015a. Economic Analysis Statement,

Federal Housing Administration (FHA): Strengthening the Home Equity Conversion Mortgage (HECM)

Program (24 CFR Parts 30 and 206). Washington, DC: U.S. Department of Housing and Urban

Development.

———. 2015b. HUD/PD&R Analysis of HERMIT System Data. Washington, DC: U.S. Department

of Housing and Urban Development.

———. 2013. Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage

Insurance Fund Fiscal Year. Washington, DC: U.S. Department of Housing and Urban Development.

———. 2011. 7610.0 HECM Protocol. Washington, DC: U.S. Departmental Housing and Urban

Development.

U.S. Securities and Exchange Commission (SEC). 2008–2010. Federal National Mortgage Associa-

tion, Form 10-Q. Washington, DC: U.S. Securities and Exchange Commission.

Wang, Chou-Wen, Hong-Chih Huang, and Yuan-Chi Miao. n.d. Securitization of Crossover Risk in

Reverse Mortgages. Taipei City, Taiwan: University of London.

Zhai, David. 2000. Reverse Mortgage Securitizations: Understanding and Gauging the Risks. Special

Report. New York: Moody’s Investors Service.