Page 362 - 2019 6th AFIS & ASMMA
P. 362
As you can imagine, the HECM grew rapidly before the crisis, and Session III
around 2009 after crisis, HECM began to decrease. Even though the
housing market did recover after five years, HECM is still going down. So how the HMBS is structured? One main difference between a
HMBS and the regular mortgage-backed security is the character of the
loan itself. As we all know, the reverse mortgage is not a typical loan; it is
kind of an open-ended non-instrument loans. So the HMBS is structured
in a way to account for those features. The investor of the HMBS will
not receive any regular payment from the borrowers to start, when the
borrower's make some payment then those payments will be distributed
but those payments were not promised. The only thing they're promised
is when the loan is closed, because either borrower dies or borrower
prepays, then the cash flow is going to happen. Until the last payment,
any interim cash flow is not guaranteed. Second feature is that the loan
is open-ended. In other words, the borrower has ability to additionally
draw from the original limit, so the loan can potentially grow over time.
The current level of origination is about half of what it used to be
at the peak of the 2009. On the other hand, secondary market actually
grows pretty strongly. So the secondary market started in 2008, and since
then the market grew, and currently they maintain in the high growth so
far. So primary market HECM was dwindling, while secondary market
HMBS is doing pretty well.
364 2019 6th AFIS & ASMMA Annual Meeting 365
