For reverse mortgage lenders, the secondary market is a complex balancing act of liquidity, interest rates and government regulations.

The industry continues to grapple with challenges stemming from the Ginnie Mae HECM Mortgage-Backed Securities (HMBS) program’s 98% buyout requirement, a rule some say contributed to the 2022 bankruptcy of Reverse Mortgage Funding (RMF). With the highly anticipated HMBS 2.0 program currently stalled, lenders are increasingly relying on private-label securitizations to fund these mandatory buyouts, manage balance-sheet stress and launch proprietary products.  

“The demand for private-label proprietary securitizations is growing, and is as strong as it is for the asset-backed security sector more broadly,” said Tim Wilkinson, vice president of capital markets at Longbridge Financial. 

In an exclusive interview with HousingWire’s Reverse Mortgage Daily, Wilkinson said that while positive, a reliance on private securitization leaves the market vulnerable to sudden shifts in investor appetite.

This interview has been edited for clarity and length. 

Flávia Furlan Nunes: The HMBS program requires issuers to repurchase aging reverse mortgages from securitizations. What is the rationale behind this buyout rule?

Tim Wilkinson: The Ginnie Mae HMBS program has a requirement that once the loan balance hits 98% of the maximum claim amount, the issuer is required to repurchase that loan from the HMBS pool. This dates back to when the program was first launched in the 1980s, so that it would be the Federal Housing Administration (FHA) who was likely managing the servicing of these loans at the period of time when there was most likely to be a maturity event, particularly related to borrower death.

My thought would be that it would allow for the FHA-directed servicer to make judgment calls related to the best way to proceed when that loan became due and payable, to ultimately balance the needs of the borrower and the heirs with the economics of what happened to that property. That has just been carried through.

Nunes: Do you believe this is one of the main reasons for financing and balance-sheet stress among reverse mortgage lenders?

Wilkinson: The issue, obviously, depends on when that loan is originated and at what point it will hit the 98%. Given that a lot of times the prevailing product is a floating-rate product, interest rates will dictate the period of time at which that 98% threshold will be reached.

Particularly for RMF — which bought quite a few seasoned loans from various places and resecuritized them, or took over the issuer status on those — they had a disproportionately large number of these loans relative to their servicing book at large.

But the issue was compounded by, in theory, all active loans are accepted by FHA on assignment under a claim type. But there have been problems at certain times due to various issues with FHA bandwidth, or sometimes when the FHA has moved their vendors, that has resulted in the time frame for a loan to be accepted for assignment to extend.

While roughly 9% of loans that hit the 98% are in active status, as soon as you start to have any meaningful number of assignable loans that you can’t assign in quick order, that starts to really increase the liquidity needed to fund those buyouts.

For a while, it all went well, in large part because there was a private-label market for buyout HECM deals. That market has since sort of returned. We see a number of market participants — Finance of America and Onity Mortgage in particular — making use of the ability to put primarily non-assignable loans into a securitization structure that the market receives quite well.

In 2022, there just wasn’t the investor demand. It was not viable to issue those securitizations. The economics just didn’t pencil out. That perfect storm is ultimately what led to RMF’s demise. It had been a noted issue in the industry well before that.

Nunes: One of the attempts to change this reality was the HMBS 2.0 program. What is the status of this program?

Wilkinson: The industry and the National Reverse Mortgage Lenders Association (NRMLA) have proposed a variety of options to address that liquidity need. Most recently, the one that had gotten a lot of traction was previously referred to as HMBS 2.0, which would allow for these bought-out loans to be put into a new Ginnie Mae securitization, very similar to the existing HMBS, to provide that liquidity.

Investors essentially always have an appetite for government-guaranteed securities, so you don’t have to deal with the market dislocations having as much of an impact. And then spreads are generally much tighter and more consistent.

Ginnie Mae put out a final term sheet nearly two years ago. The expected progress has stalled on that. The latest understanding is it’s not likely that it will move forward in its current form, which leaves the industry in the situation it had faced beforehand, where it’s reliant on the shorter time frame credit facilities and warehouse banks to fund these loans. Then, longer term, once there’s a critical mass, to do private-label securitization.

The other issue with private-label is you need to cover the rating agency costs, the legal costs and the distribution from a broker-dealer community; you need to have well over $100 million of collateral before it starts to pencil out. This means that unlike the HMBS program, where you can have a handful of loans go into a single pool, particularly for the smaller issuers, there isn’t the ability to access that liquidity.  

Nunes: Is this also impeding new entrants to the market?

Wilkinson: It’s definitely something that people look at as an impediment. I would argue that it’s probably second to, or at least further down the list relative to, the true sale treatment. The majority of the large audit accounting firms are of the opinion that the HMBS structure does not satisfy the requirements of a true sale — therefore, it gets grossed up as secured financing on balance sheets. This is particularly problematic to certain potential entrants into the market like regulated banks. That issue, I know firsthand, has certainly stopped potential participants from even looking at becoming Ginnie Mae issuers themselves.

Nunes: Do you see other lenders struggling in the current landscape due to secondary market pressures as RMF did a few years ago?

Wilkinson: There’s been the ability to get either secured financing through warehouse lines or credit facilities, and the demand and the execution on the buyout deals has been strong. The issue isn’t as pressing as it was a few years ago, but it could quickly turn if market conditions, particularly on the private securitization side of things, were to worsen.

We know it has been a challenge in the relatively recent past for some people to fund those buyouts. I’m not aware of anyone at this immediate time where that’s the case.

Nunes: Will the request for information (RFI) from regulators bring any potential changes for the HMBS program?

Wilkinson: We have yet to see any formal response on that RFI from FHA or Ginnie. That may give some guidance as to what the potential next steps are in terms of HMBS 2.0 potentially being tweaked and rebranded, or alternative proposals to provide some of that liquidity for the loans toward the end of their life.

In NRMLA’s response, they looked at the program with the term sheet that was provided as final, looking at potentially making some changes to allow a larger amount of the buyout loans to be eligible for that program, reworking it slightly, and advocating for a slightly different approach. There are also other suggestions made about the potential for issuers to retain the servicing beyond that 98% assignment to FHA, which would both provide potential sources of liquidity but also help FHA with having the responsibility of dealing with those loans and managing servicing practices.

Nunes: Looking at the space for proprietary reverse mortgages, how are securitization volumes and investor spreads trending compared to the broader mortgage market?

Wilkinson: The demand for private-label proprietary securitizations is growing, and is as strong as it is for the asset-backed security sector more broadly. As there has been larger volume and more entrants into that private securitization space, the investor base has grown. 

The spreads on the various tranches have tightened well beyond what we’ve seen more broadly in the industry, in the mortgage space, which is indicative of greater acceptance and investors generally becoming more comfortable with the space. It’s still niche, but there’s a robust demand from investors. We would expect that to continue.

Nunes: How do private-label securitizations compare to the HMBS program when it comes to execution costs and overall production volume?

Wilkinson: It would always be anticipated that the Ginnie Mae HMBS program would be the lowest cost of financing or liquidity for reverse mortgages, but we’ve seen spreads tighten on both HMBS and proprietary.

There are other structural differences. HMBS allows for tail pools. Currently, there isn’t as clean of a mechanism in private securitizations to handle things the same way, which requires reserve accounts that make the private securitizations less efficient.

In Q1 2026, the size of the proprietary market eclipsed that of HECM. There isn’t clear data on proprietary volumes. Not all issuers of private-label deals make them public; it’s a little more opaque. It’s important to note that the average proprietary loan is three to four times the size of a HECM loan. If you look at it by loan count, you’re still seeing HECM and HMBS represent the majority of production.

Nunes: Looking ahead to the rest of 2026, do you expect to see overall growth across the private-label and HMBS markets?

Wilkinson: We will definitely see growth relative to 2025. For some of the largest issuers on the private-label side, the details of their securitizations aren’t readily available, but looking at the other active issuers in the private-label space, we’ve seen Mutual of Omaha as a new entrant at the end of last year and the beginning of this year.

We saw in the first couple of months of 2026 that the HMBS issuance volume for new loans was very low. With the April issuance, which will reflect March volumes, we’ll see an uptick from that low level. With HECM, because of the direct mechanism where the 10-year Treasury rate dictates the principal limit factor — which is not as direct on the proprietary side — you definitely see HECM volumes ebb and flow depending on where interest rates are.

If we were to see a material rally in the 10-year Treasury, sending it down below a 4% yield, we’d see an increase in HECM volume. If there was a continued rally, you would start to see HECM retake the majority of the market.

A pretty good mix between the HECM program and private-label is welcome. It allows the market to adapt to changing macro circumstances and also potential policy changes from D.C. We anticipate that in 2026, we’ll probably see growth and innovation on both the existing suite of proprietary reverse mortgages and products that are designed to serve older Americans but don’t necessarily fall into the reverse mortgage box.

The HECM and HMBS market is essential to the industry, but I do not anticipate it to grow in any meaningful way unless there are either significant policy changes or we see a vastly different rate environment.