Ginnie Mae announced this week it will eliminate the flat-fee option for servicing for the HECM mortgage-backed securities (HMBS) program.

Under previous guidelines, issuers have had the option to choose from two servicing compensation methods including a monthly flat servicing fee or a basis point strip of the interest.

Under the new guidelines, which will go into effect on July 1, issuers will no longer have the flat-fee option; rather, they must choose the basis point strip with a minimum servicing fee margin of 36 basis points. This includes Ginnie Mae’s six basis point guarantee fee.

The guidance states that the new spread between the note rate and the rate at which the HMBS participation accrues interest must be at least 0.36% (36 bps), but no more than 1.50% (150 bps), including the 6 bps for the Ginnie Mae Guaranty Fee.

While reverse mortgage volume was down 35% during 2010, HMBS issuance reached $10.791 billion, up 26.4% from 2009.

View the HMBS servicing fee changes.

Written by Elizabeth Ecker