HECM Lending Limit increases to $822,375 effective January 1, 2021 The index transition is delayed a little longer.
The Government National Mortgage Association (GNMA, or “Ginnie Mae”) has announced that its previously-declared restrictions on the eligibility of Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) for adjustable rate loans operating off of the London Interbank Offered Rate (LIBOR) index, previously effective for all HMBS issuances dated on or after January 1, 2021, has now been pushed back to March 1, 2021. This is according to a new GNMA memorandum published on Wednesday.
“After further consideration of the impact of the COVID-19 Pandemic on a lender’s ability to close HECM transactions that were initiated prior to the publication of APM 20-12, Ginnie Mae is hereby extending the deadline for securitization of new LIBOR Based HECMs,” reads All Participants Memorandum (APM) 20-19 in part.
The specifics of the impending restrictions are still unchanged, however the further consideration has caused the effective date to be delayed by 60 days, according to the GNMA APM.
“Ginnie Mae will restrict the eligibility of new adjustable rate HECMs for securitization into any HMBS pool type that relies on LIBOR, including pool types ‘C AL’ and ‘C ML,’ effective with HMBS issued on or after March 1, 2021,” the guidance reads. “This means that the first participation of any LIBOR-Based HECM must be securitized into HMBS with an Issue Date of February 1, 2021 or earlier to remain eligible for securitization under Ginnie Mae’s program. Subsequent Participations—that is participations other than the first participation—that are associated with a HECM loan that is backing HMBS with an Issue Date of February 1, 2021 or earlier will continue to be eligible for securitization without restriction until further notice.”
To account for these changes, chapter 35 of GNMA’s MBS Guide has been updated based on the new effective date of the restriction. As before, the new memo makes no mention of a potential replacement index for LIBOR, though adjustable-rate reverse mortgages backed by the Constant Maturity Treasury (CMT) rate will be unaffected by this change, according to chapter 35 of the MBS Guide.
The prior GNMA guidance is significant for the reverse mortgage industry due to its reliance on the LIBOR index, and accelerated the timetable for the industry’s transition to a new rate index by nearly a year. Now, the industry will have additional time to prepare for what industry participants have described as a very disruptive change, though restriction still comes well in advance of the sunset of LIBOR scheduled to take place at the end of 2021.