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November 8, 2007
Securitization market moves forward
Even in this time of meltdown, at least one new product is reaching the securitization market -- Reverse Mortgages To Back Bond Issue - WSJ.com:
Federal housing-finance agency Ginnie Mae plans to roll out as soon as today what it calls the first "standardized" bond issue backed by reverse mortgages, a move aimed at boosting liquidity for one of the fastest-growing markets targeting baby boomers.
The offering, expected to total about $120 million, consists of more than 1,000 government-insured reverse mortgages, which allow homeowners 62 years old or older to turn home equity into income they don't have to repay until they sell their homes.
Such loans have grown rapidly in popularity in recent years, thanks to the nation's aging population, a lack of retirement savings and the rapid house-price gains in the first half of this decade. At the same time, a lack of a liquid secondary market for reverse mortgages -- where lenders can sell, as opposed to hold, the loans they make, just as what they do with traditional mortgages -- has constrained this growth.
Ted Foster, senior vice president for mortgage-backed securities at Ginnie Mae, said bundling reverse mortgages into securities could increase liquidity by providing capital-market funding sources to lenders and ultimately help drive down costs for consumers. "Our objective is to get the best price for consumers by supporting the underlying product," he said. "Two years from now, the market [for reverse-mortgage-backed securities] will be there."
For years, Fannie Mae, the government-sponsored provider of funding for home mortgages, has been the dominant buyer of reverse mortgages. Recently, lured by the product's growth potential as baby boomers retire, more financial-services firms, including Lehman Brothers Holdings Inc. and Bank of America Corp., have been buying these high-yielding loans from lenders with the idea of repackaging them into securities for sale to investors.
But Mr. Foster said until now, reverse mortgages have been packaged and sold by investment banks only to a limited number of investors through private placements -- via a complex tax-free structure called a Remic. The Ginnie Mae deal, he said, represents the first standardized reverse-mortgage security on the market and should help "open up the universe" to more investors, especially those with long-term investing horizons such as pension funds and insurance companies.
This is good news for the securitization of intangibles. It proves that with a well structure and standardized product, it is still possible to bring a new product to the capital markets in these turbulent times. Of course, the Ginnie Mae government guarantee certainly helps.
Now, all intangibles securitization needs is a standardized product (and a government guarantee?).
Posted by Ken Jarboe at November 8, 2007 10:19 AM
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