Last fall, all reverse mortgage lenders suspended their production of proprietary reverse mortgage products indefinitely citing secondary market restrictions and funding capacity constraints. It now seems that these challenges are starting to hit the FHA HECM reverse mortgage market. According to Reverse Mortgage Daily, one of the major wholesale reverse mortgage lenders is facing new restrictions from its warehouse lenders and thus is substantially reducing its capacity to fund. The lender JB Nutter, a retail and wholesale reverse mortgage lender based in Kansas City, MO, suspended accepting new applications through March 2009 citing adverse conditions in its funding capacity and recommends utilizing other lenders. JB Nutter is a non-depository lender and is subject to additional challenges and restrictions that banks aren’t facing in today’s economic environment. Fannie Mae currently is acting as the sole purchaser of reverse mortgages in the secondary market and is facing challenges as it adjusts to its new position under government control. Other bank-based reverse mortgage lenders may not have interim funding capacity issues in the interim like JB Nutter but may start experiencing ballooning inventories if Fannie Mae cannot purchase the loans fast enough from the banks. While the asset class itself does not pose significant credit risk, the funding bottlenecks will slow reverse mortgage origination to slow or make lenders change product guidelines to automatically slow the flow of production.
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