Ginnie Mae and the Department of Housing and Urban Development (HUD) have discussed ways to implement a change to their rate index, and move away from the current London InterBank Offered Rate (LIBOR) standard, according to a report by Reverse Mortgage Daily.
Michael Drayne, SVP of the Office of the President of Ginnie Mae, presented this topic at the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting in New York earlier this month.
The report states that international investigations found LIBOR was vulnerable to manipulation efforts identified between 2003 and 2012, and global regulators started actively advising financial institutions to move away from the LIBOR standard by 2021.
The Federal Reserve Bank of New York in 2014 convened the Alternative Reference Rates Committee (ARRC) to identify best practices for alternate rates, while also developing an implementation plan.
“We’re looking at this, HUD is looking at this, and we’re all participating in the industry working group convened by the Federal Reserve ARRC,” Drayne told NRMLA conference attendees. “The amount of time we have to figure everything out is less reassuring the more you look at how complicated this problem is. We at Ginnie Mae have indirect exposure to this issue. In the end, on the government side, it’s up to the Secretary of Housing to determine what the main rate is going to be.”
Drayne said Ginnie Mae’s purpose in the process is to determine how to facilitate the transition to whichever rate is chosen. Since Home Equity Conversion Mortgage-backed securities (HMBS) issuance is focused on adjustable-rate mortgages, this will play into the decision. A rising LIBOR index could also result in lower principal limit factors, further decreasing the issuance volume of HMBS, according to Reverse Mortgage Daily.
“To the extent a Ginnie Mae issuer wants to be in this market, we think that should be part of a diversified business plan,” Drayne said. “We want to make sure that they’re committed to the reverse mortgage business and committed to helping senior homeowners.”
A Look at Reverse Mortgage Trends
Home Equity Conversion Mortgage (HECM) loan originations continued to decline in March according to data from Reverse Mortgage Insights.
In March, overall HECM originations stood at 2,573 loans, registering a month-over-month decline of 35.7%. While retail HECMs declined 36.1% to 1,497 loans, the wholesale market stood at 1,076 loans registering a month-over-month decline of 35.1%.
The report indicated that the top 10 lenders in this segment all saw declines during the month "without the tailwind from loans built up during the government shutdown." The combined wholesale and retail volume among the top 10 lenders stood at 2,336 loans, a decrease from 3,567 loans originated in February 2019.