Page 371 - 2019 6th AFIS & ASMMA

So what are the main observations? One, the main driver for
the securitization of the HECM loan was the financial crisis. So the
securitization was kind of a market solution or government-mandated
market solution for the crisis caused by the final crisis of the 2008. The
second point is market is still pretty small. As you can see, the secondary
market is about 30 times, 35 times smaller. The small size is probably
due to the difference of the primary market activities. Third, the cash
flows from the mortgage-backed security pools are surprisingly similar
between the HECM-based MBS and Genie Mae forward MBS. In terms
of secondary market activities, currently, the HECM began to move
closer in terms of most of the characteristics. The HECM MBS is about
10 years old, but in terms of liquidity, trading costs seems to be almost
pretty close to what the current stage of the forward MBS actually is.

» Moderator | Richard K. Green Session III
Lastly, I looked at the spread. Unfortunately, I don't actually have the Thank you. That was particularly interesting. I'm going to ask you a
data on the actual bid and ask quotation, so we use something called question, then a question from the audience, which is basically a question
effective spread. Effective spread is the difference between daily average I was going to ask you, but I'll give credit to the audience. First, you
separation by prices. Based on these calculations, average effective spread mentioned adverse selection at the top of your presentation, but you
for the HECM MBS is about 34 basis point and 28 basis point for the didn't talk very much about it. Has there been any evidence that people do
Genie Mae forward MBS. adversely select, which is to basically say if they live in a house whose value
is falling, they take more money out, whereas if they live in the houses
value is rising, they're going to maybe sell that house pay off earlier, etc.?

» Panelist | Min Hwang
Well, I think the main idea of adverse selection is more close to the
private information about the longevity of themselves. People with a
better longevity prospect, based on the private information, are more
likely to apply for the reverse mortgages. So they tend to live much
longer, tend to have more losses for the lender. That was the main idea of
the adverse selection.

372 2019 6th AFIS & ASMMA Annual Meeting 373