State mortgage insurer Ginnie Mae will restrict pooling of certain adjustable rate mortgages before plans to phase out Libor late next year.
The restrictions on pooling loans with a Libor-based interest term apply to traditional mortgage-backed securities issued on or after January 21, 2021.
For MBSs backed by home conversion mortgages, the restriction begins on January 1st. For the time being, investments in existing HMBS with an issue date on or before December 1 of this year can still be securitized without restriction.
The change is most significant for the reverse mortgage market, which has relied heavily on Libor as an index.
Both reverse mortgages and traditional ARMs indexed to the constant-maturity Treasury index continue to be aggregated without restriction.
Ginnie Mae is ready to insure securitized ARMs backed by the Secured Overnight Financing Rate if these products are loan-approved insurance for these products by other government agencies.
Due to historically low fixed interest rates and plans to phase out Libor, Ginnie's traditional ARM securitization declined significantly over the past year. In August it was $ 12 million, up from $ 68 million in the same month last year and $ 354 million in August 2018.
In comparison, newly securitized reverse mortgages continue to run at an average rate of $ 500 to $ 600 million per month, according to capital markets consultancy New View Advisors.
Overall, ARM securitization accounts for just over 1% of Ginnie Mae's total issuance, which approached nearly $ 78 billion last month.