Understanding Ginnie Mae Reverse Mortgage H-REMICs: Its Programs and Cashflow Analysis

Abstract

A reverse mortgage is a financial product that allows a senior homeowner to access their home equity. In contrast to a traditional or conventional “forward” mortgage, a reverse mortgage allows the borrower to draw on the equity in the home and only repay the loan when they vacate the house. This allows a borrower with few liquid assets but a lot of accumulated home equity to access trapped cash. The FHA’s reverse mortgage program referred to as the Home Equity Conversion (HECM) program was established in 1989, though Ginnie Mae mortgage-backed securities backed by HECM’s (HMBS) were issued for investors and the first Ginnie Mae H-REMIC (CMO) backed by multiple HMBS pools was not issued until 2009. The methods and parameters used to compute yields with varying LIBOR assumptions for CMO tranches backed by reverse mortgages differs from those for traditional mortgages.

The Author would like to thank Rico Fu for preparing the H-REMIC Analytics in the Beyondbond, Inc. proprietary systems and Joseph J. Kelly from New View Advisors LLC for his invaluable assistance in validating our computational results.

Appendices

Appendix 1: Assumed Trust Assets GNR 2011-H10: HMBS Pools (see Ginnie Mae REMIC Offering Circulars 2010)

Assumed characteristics of the HECMs and the participations underlying the trust assets(1)
Payment plan	HECM MBS principal balance(2)	HECM loan balance	Approximate weighted average HECM age (in months)(3)	HECM interest type	Index	Rate reset frequency(4)	Next rate reset months(5)	Approximate weighted average gross interest rate(6)	Approximate weighted average gross margin(7)	approximate weighted average gross lifetime interest rate floor(8)	Approximate weighted average gross lifetime interest rate cap(9)	Approximate weighted average MIP Fee(10)	approximate weighted average servicing fee margin(11)	Monthly servicing fee(12)	Monthly scheduled draw(13)	Approximate weighted average remaining draw term (in months)(14)	Available line of credit(15)	Maximum claim amount(16)	Pool number	HECM MBS issue date
Line of credit	$18,619,073.29	$149,868,750.73	20	FLT	1-month LIBOR	Monthly	1	3.260%	3.000%	3.000%	13.275%	0.500%	0.060%	$29,630.00	(18)	(18)	$ 42,160,357.74	$289,116,200.00	892359	December 2009
Modified tenure	907,305.03	4,392,716.09	19	FLT	1-month LIBOR	Monthly	1	3.260	3.000	3.000	13.275	0.500	0.060	1,130.00	$ 35,684.25	(19)	2,374,137.91	15,726,500.00	892359	December 2009
Modified term	2,100,257.97	9,203,544.50	19	FLT	1-month LIBOR	Monthly	1	3.260	3.000	3.000	13.271	0.500	0.060	2,010.00	96,748.57	14	3,380,700.28	24,488,500.00	892359	December 2009
Tenure	542,880.48	3,936,940.86	19	FLT	1-month LIBOR	Monthly	1	3.260	3.000	3.000	13.270	0.500	0.060	910.00	38,604.14	(19)	0.00	12,763,500.00	892359	December 2009
Term	97,118.96	2,577,209.70	22	FLT	1-month LIBOR	Monthly	1	3.260	3.000	3.000	13.355	0.500	0.060	535.00	31,655.63	22	0.00	6,171,000.00	892359	December 2009
Line of credit	26,378,756.79	28,212,847.90	31	FLT	1-month LIBOR	Monthly	1	1.144	0.886	0.886	13.366	0.500	0.090	6,605.00	(18)	(18)	3,874,061.82	44,567,491.00	892371	December 2009
Modified tenure	800,558.63	1,039,739.89	32	FLT	1-month LIBOR	Monthly	1	1.228	0.968	0.968	13.447	0.500	0.090	310.00	8,842.86	(19)	186,804.38	2,482,515.00	892371	December 2009
Modified term	1,217,565.63	1,606,802.18	32	FLT	1-month LIBOR	Monthly	1	1.112	0.853	0.853	13.330	0.500	0.090	(17)	14,044.09	83	54,838.49	3,295,775.00	892371	December 2009
Tenure	225,384.11	278,675.63	32	FLT	1-month LIBOR	Monthly	1	1.079	0.819	0.819	13.294	0.500	0.090	125.00	3,056.04	(19)	0.00	977,000.00	892371	December 2009
Term	159,213.20	202,880.29	31	FLT	1-month LIBOR	Monthly	1	1.241	0.982	0.982	13.462	0.500	0.090	(17)	2,529.25	172	0.00	618,000.00	892371	December 2009
Line of credit	36,059,285.68	38,263,386.61	30	FLT	1-month LIBOR	Monthly	1	1.681	1.421	1.421	13.942	0.500	0.090	9,950.00	(18)	(18)	3,655,008.89	58,646,485.00	892373	December 2009
Modified tenure	404,228.16	584,857.30	30	FLT	1-month LIBOR	Monthly	1	1.759	1.499	1.499	14.477	0.500	0.090	230.00	4,966.16	(19)	168,926.99	1,825,160.00	892373	December 2009
Modified term	500,822.39	637,769.39	31	FLT	1-month LIBOR	Monthly	1	1.679	1.419	1.419	13.799	0.500	0.090	295.00	6,413.99	51	248,476.24	1,753,290.00	892373	December 2009
Tenure	262,154.81	304,121.40	29	FLT	1-month LIBOR	Monthly	1	1.650	1.390	1.390	13.183	0.500	0.090	130.00	2,326.21	(19)	0.00	880,000.00	892373	December 2009
Term	203,685.31	242,586.98	31	FLT	1-month LIBOR	Monthly	1	1.724	1.464	1.464	13.698	0.500	0.090	60.00	2,235.44	80	0.00	549,950.00	892373	December 2009
Line of credit	43,771,754.23	47,178,372.92	30	FLT	1-month LIBOR	Monthly	1	1.409	1.156	1.156	14.532	0.500	0.090	11,571.00	(18)	(18)	8,816,539.75	77,009,022.00	892374	December 2009
Modified tenure	1,420,453.11	1,796,027.09	31	FLT	1-month LIBOR	Monthly	1	1.421	1.164	1.164	14.380	0.500	0.090	585.00	14,762.00	(19)	608,278.20	5,153,538.00	892374	December 2009
Modified term	1,753,709.43	2,426,214.92	30	FLT	1-month LIBOR	Monthly	1	1.430	1.173	1.173	14.518	0.500	0.090	670.00	30,620.73	47	94,061.24	5,152,860.00	892374	December 2009
Tenure	336,097.61	443,640.54	31	FLT	1-month LIBOR	Monthly	1	1.430	1.173	1.173	14.600	0.500	0.090	280.00	6,187.21	(19)	0.00	1,782,010.00	892374	December 2009
Term	209,903.41	243,198.71	30	FLT	1-month LIBOR	Monthly	1	1.430	1.173	1.173	14.680	0.500	0.090	85.00	1,865.53	154	0.00	542,350.00	892373	December 2009
Line of credit	779,906.80	18,243,636.18	37	FLT	1-month LIBOR	Monthly	1	1.657	1.397	1.397	14.334	0.500	0.160	3,695.00	(18)	(18)	1,384,595.54	26,492,633.00	891840	June2009
Modified tenure	4,168.16	276,577.79	38	FLT	1-month LIBOR	Monthly	1	1.344	1.084	1.084	14.343	0.500	0.160	70.00	750.00	(19)	59,777.34	560,290.00	891840	June 2009
Modified term	38,071.44	515,419.12	38	FLT	1-month LIBOR	Monthly	1	1.384	1.124	1.124	14.567	0.500	0.160	105.00	4,632.02	38	158,360.96	906,790.00	891840	June 2009
Tenure	2,319.67	73,798.97	37	FLT	1-month LIBOR	Monthly	1	1.752	1.492	1.492	14.603	0.500	0.160	35.00	177.36	(19)	0.00	125,000.00	891840	June 2009
Term	30,407.98	144,900.42	37	FLT	1-month LIBOR	Monthly	1	1.260	1.000	1.000	13.775	0.500	0.160	35.00	3,216.61	64	0.00	362,790.00	891840	June 2009
Line of credit	4,128,213.10	88,895,122.30	38	FLT	1-month LIBOR	Monthly	1	0.998	0.738	0.738	14.247	0.500	0.100	19,955.00	(18)	(18)	10,731,394.22	135,126,549.00	892600	November 2009
Modified tenure	185,396.54	2,521,431.96	39	FLT	1-month LIBOR	Monthly	1	0.958	0.698	0.698	14.629	0.500	0.100	775.00	14,283.14	(19)	786,666.47	6,253,210.00	892600	November 2009
Modified term	555,414.76	4,787,178.77	39	FLT	1-month LIBOR	Monthly	1	0.967	0.707	0.707	14.631	0.500	0.100	1,320.00	31,017.08	79	259,105.80	9,311,740.00	892600	November 2009
Tenure	228,230.16	3,377,186.82	38	FLT	1-month LIBOR	Monthly	1	0.986	0.726	0.726	14.560	0.500	0.100	995.00	21,332.02	(19)	0.00	7,959,515.00	892600	November 2009
Term	60,724.98	756,181.60	38	FLT	1-month LIBOR	Monthly	1	0.960	0.700	0.700	14.370	0.500	0.100	230.00	5,434.84	98	0.00	1,514,790.00	892600	November 2009
Line of credit	7,112,529.64	40,252,789.51	19	FLT	1-month LIBOR	Monthly	1	2.510	2.250	2.250	12.498	0.500	0.060	8,575.00	(18)	(18)	17,037,176.20	85,095,300.00	892356	December 2009
Modified tenure	335,160.64	1,660,646.47	18	FLT	1-month LIBOR	Monthly	1	2.510	2.250	2.250	12.500	0.500	0.060	420.00	14,829.97	(19)	722,937.75	6,017,000.00	892356	December 2009
Modifiedterm	644,092.55	1,833,051.52	19	FLT	1-month LIBOR	Monthly	1	2.509	2.250	2.250	12.497	0.500	0.060	375.00	40,475.05	14	729,977.43	5,290,500.00	892356	December 2009
Tenure	799,042.10	1,666,493.11	19	FLT	1-month LIBOR	Monthly	1	2.510	2.250	2.250	12.497	0.500	0.060	420.00	13,379.10	(19)	0.00	5,171,000.00	892356	December 2009
Term	334,486.52	2,101,663.46	18	FLT	1-month LIBOR	Monthly	1	2.510	2.250	2.250	12.498	0.500	0.060	310.00	23,134.31	18	0.00	4,546,000.00	892356	December 2009
Line of credit	1,092,376.97	89,638,699.11	38	FLT	1-month LIBOR	Monthly	1	0.997	0.737	0.737	14.142	0.500	0.100	20,250.00	(18)	(18)	11,057,553.19	136,880,385.00	892602	January 2010
Modified tenure	52,182.02	2,567,623.77	38	FLT	1-month LIBOR	Monthly	1	0.974	0.714	0.714	14.285	0.500	0.100	810.00	15,150.88	(19)	813,466.84	6,503,210.00	892602	January 2010
Modified term	135,669.10	4,549,210.02	39	FLT	1-month LIBOR	Monthly	1	0.959	0.699	0.699	14.539	0.500	0.100	1,285.00	31,017.08	89	257,897.61	8,948,950.00	892602	January 2010
Tenure	59,286.97	3,513,477.70	38	FLT	1-month LIBOR	Monthly	1	0.977	0.717	0.717	14.498	0.500	0.100	1,055.00	22,341.88	(19)	0.00	8,304,675.00	892602	January 2010

Appendix 2: HECM PPC Curve: CPR Percentage in Effect by HECM Age

Age	CPR %	Age	CPR %	Age	CPR %	Age	CPR %	Age	CPR %	Age	CPR %
1	0.00000	61	15.09115	121	22.43490	181	29.77865	241	37.05000	301	40.05000
2	0.54545	62	15.21354	122	22.55729	182	29.90104	242	37.10000	302	40.10000
3	1.09091	63	15.33594	123	22.67969	183	30.02344	243	37.15000	303	40.15000
4	1.63636	64	15.45833	124	22.80208	184	30.14583	244	37.20000	304	40.20000
5	2.18182	65	15.58073	125	22.92448	185	30.26823	245	37.25000	305	40.25000
6	2.72727	66	15.70313	126	23.04688	186	30.39063	246	37.30000	306	40.30000
7	3.27273	67	15.82552	127	23.16927	187	30.51302	247	37.35000	307	40.35000
8	3.81818	68	15.94792	128	23.29167	188	30.63542	248	37.40000	308	40.40000
9	4.36364	69	16.07031	129	23.41406	189	30.75781	249	37.45000	309	40.45000
10	4.90909	70	16.19271	130	23.53646	190	30.88021	250	37.50000	310	40.50000
11	5.45455	71	16.31510	131	23.65885	191	31.00260	251	37.55000	311	40.55000
12	6.00000	72	16.43750	132	23.78125	192	31.12500	252	37.60000	312	40.60000
13	6.29167	73	16.55990	133	23.90365	193	31.24740	253	37.65000	313	40.65000
14	6.58333	74	16.68229	134	24.02604	194	31.36979	254	37.70000	314	40.70000
15	6.87500	75	16.80469	135	24.14844	195	31.49219	255	37.75000	315	40.75000
16	7.16667	76	16.92708	136	24.27083	196	31.61458	256	37.80000	316	40.80000
17	7.45833	77	17.04948	137	24.39323	197	31.73698	257	37.85000	317	40.85000
18	7.75000	78	17.17188	138	24.51563	198	31.85938	258	37.90000	318	40.90000
19	8.04167	79	17.29427	139	24.63802	199	31.98177	259	37.95000	319	40.95000
20	8.33333	80	17.41667	140	24.76042	200	32.10417	260	38.00000	320	41.00000
21	8.62500	81	17.53906	141	24.88281	201	32.22656	261	38.05000	321	41.05000
22	8.91667	82	17.66146	142	25.00521	202	32.34896	262	38.10000	322	41.10000
23	9.20833	83	17.78385	143	25.12760	203	32.47135	263	38.15000	323	41.15000
24	9.50000	84	17.90625	144	25.25000	204	32.59375	264	38.20000	324	41.20000
25	9.66667	85	18.02865	145	25.37240	205	32.71615	265	38.25000	325	41.25000
26	9.83333	86	18.15104	146	25.49479	206	32.83854	266	38.30000	326	41.30000
27	10.00000	87	18.27344	147	25.61719	207	32.96094	267	38.35000	327	41.35000
28	10.16667	88	18.39583	148	25.73958	208	33.08333	268	38.40000	328	41.40000
29	10.33333	89	18.51823	149	25.86198	209	33.20573	269	38.45000	329	41.45000
30	10.50000	90	18.64063	150	25.98438	210	33.32813	270	38.50000	330	41.50000
31	10.66667	91	18.76302	151	26.10677	211	33.45052	271	38.55000	331	41.55000
32	10.83333	92	18.88542	152	26.22917	212	33.57292	272	38.60000	332	41.60000
33	11.00000	93	19.00781	153	26.35156	213	33.69531	273	38.65000	333	41.65000
34	11.16667	94	19.13021	154	26.47396	214	33.81771	274	38.70000	334	41.70000
35	11.33333	95	19.25260	155	26.59635	215	33.94010	275	38.75000	335	41.75000
36	11.50000	96	19.37500	156	26.71875	216	34.06250	276	38.80000	336	41.80000
37	11.66667	97	19.49740	157	26.84115	217	34.18490	277	38.85000	337	41.85000
38	11.83333	98	19.61979	158	26.96354	218	34.30729	278	38.90000	338	41.90000
39	12.00000	99	19.74219	159	27.08594	219	34.42969	279	38.95000	339	41.95000
40	12.16667	100	19.86458	160	27.20833	220	34.55208	280	39.00000	340	42.00000
41	12.33333	101	19.98698	161	27.33073	221	34.67448	281	39.05000	341	42.05000
42	12.50000	102	20.10938	162	27.45313	222	34.79688	282	39.10000	342	42.10000
43	12.66667	103	20.23177	163	27.57552	223	34.91927	283	39.15000	343	42.15000
44	12.83333	104	20.35417	164	27.69792	224	35.04167	284	39.20000	344	42.20000
45	13.00000	105	20.47656	165	27.82031	225	35.16406	285	39.25000	345	42.25000
46	13.16667	106	20.59896	166	27.94271	226	35.28646	286	39.30000	346	42.30000
47	13.33333	107	20.72135	167	28.06510	227	35.40885	287	39.35000	347	42.35000
48	13.50000	108	20.84375	168	28.18750	228	35.53125	288	39.40000	348	42.40000
49	13.62240	109	20.96615	169	28.30990	229	35.65365	289	39.45000	349	42.45000
50	13.74479	110	21.08854	170	28.43229	230	35.77604	290	39.50000	350	42.50000
51	13.86719	111	21.21094	171	28.55469	231	35.89844	291	39.55000	351	42.55000
52	13.98958	112	21.33333	172	28.67708	232	36.02083	292	39.60000	352	42.60000
53	14.11198	113	21.45573	173	28.79948	233	36.14323	293	39.65000	353	42.65000
54	14.23438	114	21.57813	174	28.92188	234	36.26563	294	39.70000	354	42.70000
55	14.35677	115	21.70052	175	29.04427	235	36.38802	295	39.75000	355	42.75000
56	14.47917	116	21.82292	176	29.16667	236	36.51042	296	39.80000	356	42.80000
57	14.60156	117	21.94531	177	29.28906	237	36.63281	297	39.85000	357	42.85000
58	14.72396	118	22.06771	178	29.41146	238	36.75521	298	39.90000	358	42.90000
59	14.84635	119	22.19010	179	29.53385	239	36.87760	299	39.95000	359	42.95000
60	14.96875	120	22.31250	180	29.65625	240	37.00000	300	40.00000	360	43.00000

Appendix 3: Example of Cashflow Payment Rules

(t starts from 1)

$$ Rat{{e}_t}(FA) = Min(Cap, LIBO{{R}_t} + Margin) $$

$$ AccrueInteres{{t}_t}(FA) = Balanc{{e}_{{t - 1}}}(FA)\times Rat{{e}_t}(FA)/12 $$

$$\ \ (IfBondPrincipa{{l}_t} \ge 0)\hfill $$

$$ Interes{{t}_t}(FA) = \frac{{BondInteres{{t}_t}\times AccrueInteres{{t}_t}(FA)}}{{BondInteres{{t}_t}}} $$

$$ Principa{{l}_t}(FA) = \frac{{BondPrincipa{{l}_t}\times Balanc{{e}_{{t - 1}}}(FA)}}{\eqalign{BondBalanc{{e}_{{t - 1}}} - BondBalanc{{e}_0} \cr + Balanc{{e}_0}(FA)}} $$

$$ Interes{{t}_t}(IA) = BondInteres{{t}_t} - Interes{{t}_t}(FA) $$

$$ \quad\quad\;(IfBondPrincipa{{l}_t} < 0) \hfill$$

$$ Interes{{t}_t}(FA) = \frac{\eqalign{ (BondInteres{{t}_t} + BondPrincipa{{l}_t}) \cr \times AccrueInteres{{t}_t}(FA)}} {{BondInteres{{t}_t}}} $$

$$ Principa{{l}_t}(FA) = 0 $$

$$ \begin{array}{lllll}Interes{{t}_t}(IA) = BondPrincipa{{l}_t} + BondInteres{{t}_t} \cr \qquad\qquad\qquad\quad- Interes{{t}_t}(FA) \end{array}$$

$$ Principa{{l}_t}(FA) = \min (Principa{{l}_t}(FA),Balanc{{e}_{{t - 1}}}(FA)) $$

$$ Balanc{{e}_t}(FA) = Balanc{{e}_{{t - 1}}}(FA) + AccrueInteres{{t}_t}(FA) - Interes{{t}_t}(FA) - Principa{{l}_t}(FA) $$

$$ Balanc{{e}_t}(IA) = BondPrincipa{{l}_t} $$

Appendix 4: A Model for Estimating Repayment Speeds for HECMs

It is possible to estimate the repayment speeds on reverse mortgages by combining the mortality rates and mobility rates provided by the US Life Tables (see Rai, 2009). The probability that a borrower will not die in the next 12 months, at any given age, can be represented by (1 – Mortality Rate [Annualized]). Similarly, the probability that a borrower does not move out in the next 12 months is equal to (1 – Mobility Rate [Annualized]).

Thus, the probability that the loan does not repay over the next 12 months is equal to:

$$ \left( {1 - \mathrm{Mortality} \ \mathrm{Rate}} \right) \ * \ \left( {1 - \mathrm{Mobility} \ \mathrm{Rate}} \right) $$

Therefore, the repayment speeds on reverse mortgages can be calculated as:

$$ \begin{array}{lllll}\mathrm{CPR} = \ 1 - \left[(1 - \mathrm{Mortality} \ \mathrm{Rate} \ \left[ {\mathrm{Annualized}} \right]) \ * \right. \\ \left. \qquad\quad(1 - \mathrm{Mobility} \ \mathrm{Rate} \left[\mathrm{Annualized}\right] ) \right]\end{array}$$

Estimating repayments based on just mortality and mobility rates provides reasonable results, though the model will tend to overestimate repayment speeds as compared to the repayment speeds based on historical data, due to self-selection. Borrowers who are in good health are more likely to take out reverse mortgage loans despite high origination costs.

Glossary (see Ginnie Mae MBS Guide, 2011; NRMLA website)

Reverse Mortgage

Reverse mortgage loans are FHA-insured loans designed specifically to permit senior citizens to convert the home equity of their principal residence into cash.

HECM

Home Equity Conversion Mortgages program. HECM was launched in 1987 by the Department of Housing and Urban Development. This is a federal reverse mortgage program and was launched to provide an opportunity to senior citizens to take advantage of their built-up home equity. The loans are fully guaranteed by the US government.

HMBS

Home Equity Conversion Mortgage Backed Security. It’s collateralized by HECM loans.

H-REMIC

HECM Real Estate Mortgage Investment Conduit. Allows for inclusion of HMBS and forward Ginnie Mae MBS collateral within the same REMIC structure. First HREMIC Issuance: Anticipated January 2008.

HUD

Department of Housing and Urban Development. Congress created the HECM program in 1989 and appointed the Department of Housing and Urban Development (HUD) as the administrator.

MIP

Mortgage Insurance Premium. The borrower will be charged mortgage insurance premiums to reduce the risk of loss in the event that the outstanding balance, including accrued interest, MIP, and fees, exceeds the value of the property at the time that the mortgage is due and payable. HUD will select an agent to collect MIP.

MCA

Maximum Claim Amount. The amount that FHA will insure for any HECM loan. FHA allows Issuers to assign a HECM loan that accrues to 98% of the MCA. Ginnie Mae requires any loan that has accrued to 98% of MCA to be purchased out of an HMBS pool whether or not an Issuer assigns the loan to FHA.