By Vishaal B. Bhuyan
AARP electronic variations give you useful information, confirmed ideas, and specialist suggestions.
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Extra resources for AARP Reverse Mortgages and Linked Securities. The Complete Guide to Risk, Pricing, and Regulation
Sample text
Joe was later recruited to create GMAC Commercial Mortgage. The securitization model was to use a rated zero-coupon bond where the loan maturities would fund the ongoing obligation to make loan payments to borrowers. Provided each loan in the pool was properly underwritten to control longevity risk and interest rate risk was controlled, the tail risk was minimal and did not require either private or public mortgage insurance. Because Transamerica Corp. agreed to provide the funding for all loans, securitization was never implemented.
28 A HECM borrower can choose to have interest accrue on amounts outstanding under the loans at either a fixed or an adjustable rate. An adjustable interest rate can be reset either monthly or annually, but the interest rate on a HECM loan may not increase more than 2 percent in any one year or more than 5 percent over the term of the loan. 29 A HECM borrower can choose to receive loan disbursements in one of five ways. First, under the “tenure” option, disbursements can be made to a borrower in equal monthly installments for life.
In the case of HECM-insured loans, the borrower’s origination and servicing fees are highly regulated and limited in many cases. For example, HECM loans are limited to roughly a $6,000 origination fee, which, at the time of this writing, has been reduced even further. No such cap on origination fees exists in nonconforming reverse mortgage loans, which are not insured by HUD or any other government agency. From an investor’s standpoint, this may present a tremendous opportunity in the nonconforming sector of the market, as longevity and real estate risk maybe more favorably and accurately priced.