Volume 7 - Number 12
June 6, 2014
GNMA Bans Pooling of HECMs with Future Draws
Ginnie Mae has prohibited the pooling of Home Equity Conversion Mortgage loans that provide for future draws at a fixed rate of interest starting June 1, 2014. The agency said servicers that are committed to advance funds to borrowers at a fixed rate could become seriously undercapitalized if interest rates rise from the time of origination. “The impact of negative spreads between a fixed note rate and future prevailing rates could be exacerbated in such loans, and endanger the servicers’ capacity to meet their HMBS (HECM mortgage-backed securities) obligations, which require the issuer to maintain the capacity to advance funds as required under the HMBS program,” Ginnie explained in a recent memo to issuers. Program requirements include the funding of draw requests from borrowers and buying all related participations out of pools when the outstanding principal balance of the related HECM loan reaches 98 percent of the maximum claim amount, Ginnie noted. Borrower requests for ...
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