Ginnie Mae assumed control of the servicing operation of bankrupt reverse mortgage lender Reverse Mortgage Funding this week, as first reported by Institutional Risk Analyst (IRA). However, impacted RMF borrowers should not notice the transfer has taken place.
“The transfer of servicing for RMF loans should have minimal direct impact on affected borrowers,” Ginnie Mae President Alanna McCargo told IRA. “Borrowers will receive a notification about the transfer of servicing as required by law, but that will not affect the payment schedule and borrowers should expect to continue to receive payments as usual.”
Fannie Mae has also seized some of RMF’s assets, according to IRA.
RMD sent requests for comment to Ginnie Mae and Fannie Mae but did not receive an immediate response. An RMF spokesperson confirmed the event to RMD and reiterated McCargo’s assurance that borrowers should not discern any major impacts from the move.
“On December 20, 2022, RMF notified the United States Bankruptcy Court for the District of Delaware that Ginnie Mae would be taking over all loans in GNMA HMBS pools,” an RMF spokesperson told RMD in a statement. “RMF’s borrowers and investors should not experience any noticeable changes as a result of the transition. We continue to achieve outcomes that minimize impact to borrowers with this portfolio and will continue to do the same for the rest of the Company’s loan portfolio as well.”
According to court documents filed shortly after RMF’s bankruptcy declaration, the declaration constituted a default event, known as a “servicer termination event,” under the sale and servicing agreement terms of the private label securitizations.
“Under the terms of the sale and servicing agreements related to each of the private label securitizations, upon RMF’s filing for bankruptcy, certain ‘controlling noteholders’ have the right to replace the RMF as servicer on the reverse mortgage loans underlying the securitizations,” the first-day declaration states.
The motion was approved in court on December 20 and ends RMF’s Ginnie Mae servicing rights.
Coupled with the asset seizure by Fannie Mae, this could pose further challenges for the reverse mortgage industry — which has already endured steep volume losses and reduced issuance of HECM-backed Securities (HMBS).
RMF abruptly halted its origination activities on November 21 and filed for Chapter 11 bankruptcy protection the following week.
Sources who spoke to RMD about the lender’s collapse attributed a precipitous rise in interest rates to heavy losses for both Home Equity Conversion Mortgage (HECM) and proprietary reverse mortgage volume.
The volume decline impacted RMF’s HECM servicing business, which caused its loan-securitization outlets to freeze both private-label bonds and Ginnie Mae-guaranteed HECM-backed securities.
These events triggered a cascading chain of defaults on RMF’s warehouse-lending lines, which provide the lifeblood cash flow for the lender, according to a review of bankruptcy documents.
The collapse of RMF was the most-read story on RMD in 2022.
