The HMBS Program: A cornerstone of reverse mortgage stability 

The secondary market for Home Equity Conversion Mortgage (HECM) mortgage-backed securities (HMBS) is the financial engine that powers the reverse mortgage industry. By selling HMBS to investors with Ginnie Mae’s guarantee, lenders gain the liquidity needed to fund new loans and meet the growing demand among senior homeowners. However, each day awaiting Ginnie Mae’s HMBS 2.0 implementation spurs concerns about liquidity risks for reverse mortgage lenders who also serve as HMBS issuers. 

Reverse mortgage industry participants eagerly awaited the arrival of HMBS 2.0 last year with the hopes of the program being enacted before the year’s end. Then on November 15th, it was announced that then Ginnie Mae president Sam Valverde would be stepping down effective November 30th. In its press release Ginnie Mae said, “Upon Valverde’s departure, Senior Vice President and Chief Risk Officer Gregory Keith will assume the responsibilities of Ginnie Mae President.”

The latest status of HMBS 2.0

The last update on HMBS 2.0 arrived Thanksgiving week. Ginnie Mae released the final term sheet for the proposed new program. The press release concludes, “With the policy work completed, Ginnie Mae is now focused on program implementation and is working closely with vendors and contractors to establish a comprehensive work schedule and completion timeline”.

Liquidity is the name of the game

Liquidity is critical for reverse mortgage lenders because it determines their ability to recycle capital efficiently. When loans are originated, lenders often rely on the secondary market to sell these loans as HMBS, recouping the funds needed to issue new mortgages. The impending enactment of HMBS 2.0 poses potential liquidity risks for issuing lenders that are holding HECM loans on their balance sheets. This extended holding period exposes HMBS issuers to interest rate risks, where rising rates could erode the value of loans before they are securitized and sold.

Moreover, investor confidence in HMBS is closely tied to the robustness of the market infrastructure. Investors’ appetite for HECM mortgage-backed securities must remain stable if not vigorous because a diminished investor appetite could result in lower prices for HMBS or even an inability to sell certain pools, creating a liquidity crunch for issuers.

In a market as critical as reverse mortgages, liquidity is not just a financial term—it is the lifeblood of an industry that helps seniors unlock the value of their home equity. Ensuring a robust secondary market through timely updates like HMBS 2.0 is essential for the long-term health and stability of HECM lending.

HMBS 2.0…where art thou? We welcome your arrival.