Over the past eight years, the Dunn Family of Bellevue, WA has built Traditional Mortgage Acceptance Corp. (TMAC) into a top-tier reverse mortgage lender and issuer of Ginnie Mae (GNMA) HECM Mortgage-Backed Securities (HMBS).
TMAC’s CEO, Kenneth Dunn, Ph.D., is an Emeritus Professor of Financial Economics at the David A. Tepper School of Business at Carnegie Mellon University and an early pioneer in the development and valuation of mortgage-backed securities.
His son Brett, Ph.D., was an early proponent of the HMBS program while at PNC Financial Services Group and today oversees TMAC’s various business channels, including wholesale lending, correspondent lending, capital markets, data analytics and finance.
Brett’s wife, Elisa, is TMAC’s chief financial officer. Previously, she served as executive director of UCLA’s Anderson Master of Financial Engineering Program and spent 12 years working in finance for market-leading firms in New York, Canada and Brazil.
Reverse Mortgage magazine sat down with Brett Dunn to talk about TMAC’s background, the impact of recent Ginnie’s Mae HMBS reforms, and plans for the future.
Reverse Mortgage: How did you get your start in reverse mortgages?
Brett Dunn: When I was a portfolio manager at PNC Bank, I managed a portfolio indexed against investments of similar parameters as Ginnie Mae HMBS securities. I had a good relationship with Bank of America, and so they brought the idea of investing in HMBS to us. I researched reverse mortgages for about six months and then got the go-ahead to start buying HMBS, which turned out to be a great product for the bank. They are government-guaranteed, have a zero percent risk weight and have very attractive returns. We ended up holding the largest portfolio of HMBS outside of Fannie Mae by the time I left in 2012 to pursue my PhD at UCLA.
RM: Your father is CEO of TMAC and your wife is CFO. What inspired your family to open a mortgage company?
BD: It was an interesting challenge. We saw how much the product could help people, yet had a very low market penetration, so it seemed like a great opportunity to make a difference. My father and I started the company while I was in the Ph.D. program, and we leveraged on my prior experience with reverse mortgages. After I graduated, I decided to join the company because I wanted to contribute to the space and make a difference. My wife Elisa had a background in investment banking, so she was a natural fit to join the company as CFO. It wasn’t planned this way. Everything kind of fell into place.
It’s been fun running a family business, but it can be hard to put work aside. When I was in the Ph.D. program, I felt like I was always working. It was hard to separate work and regular life, and TMAC is a more extreme example of it. It penetrates everything we do.
RM: How long has TMAC been in the reverse mortgage business? Are you solely focused on operating a reverse mortgage correspondent/wholesale channel, or do you have a dedicated reverse mortgage retail sales force too?
BD: TMAC started operating as a reverse mortgage lender in 2015 after we acquired the assets of Silvergate Funding, including its HMBS portfolio. Today, TMAC operates in all channels, including correspondent, wholesale, principal-agent and retail. On the retail side, we operate a DBA called Goodlife Home Loans. We’ve been fairly strategic, especially as a small company, ensuring that all the channels are properly balanced.
RM: Do you have any plans to expand into other forms of lending, or will you remain focused on reverse mortgages? How many people does TMAC employ? How many states is TMAC licensed?
BD: Our short-term business plan is to remain focused on reverse mortgages, but we’re very attuned to new opportunities as they come up. Currently, we have 40 employees. We’re licensed in 40 states, including the District of Columbia, and 35 states for direct-to-consumer.
RM: Is there a science to securitizing HECMs? For example, are there thresholds – perhaps the number of HECMs funded or a dollar amount – that determine when you initiate a securitization?
BD: It’s a fairly complicated optimization problem. At a high level, we try to create liquid pools that have characteristics attractive to investors. Investors generally prefer larger pools but that requires more working capital, so you have to be cognizant of how much capital is required to do that. It’s a balancing act between creating large pools and maintaining the correct liquidity levels for everyday commitments within the company.
RM: Is there a minimum dollar amount that investors of HMBS require?
BD: No, there isn’t. I’ve traded pools right at the minimum amount of $250,000, and they trade surprisingly well. I would say, in general, anything over $5 million is ideal, but $10 million to $20 million is probably a sweet spot.
RM: Ginnie Mae authorized the $250,000 minimum pool size in 2023 as part of its ongoing efforts to minimize liquidity risk. Has that change had a positive impact?
BD: Yes, and it’s been a huge help for issuers that don’t have alternative sources of financing for “tails.”
RM: For our readers’ sake can you please explain what a tail is?
BD: After a HECM is funded, we pool loans together and then securitize them as HMBS pools. After the initial securitization, there are various ways that the balance of the loans grows more than the security, such as borrower draws, interest accruals, and monthly mortgage insurance premium (MIP) payments. One of the ways that servicers earn income is through subsequent securitizations of those balances, which we refer to as tails.
RM: NRMLA and its Executive Committee spent a great deal of time with Ginnie Mae this past year working on new policies to help reduce the liquidity risk felt by HMBS issuers. While there’s still more to do, how have some of the changes impacted your business?
BD: Ginnie Mae’s actions thus far have had a huge impact on our business. First, GNMA reduced the minimum pool size from $1 million to $250,000, which freed up a lot of liquidity for us. Second, the implementation of multiple participations per month has helped a lot too. Once you securitize a participation in a loan, if the borrower draws later that month, under the prior rules you couldn’t securitize that draw. So, it involved a lot of analytics to balance the benefits from securitizing versus the risk of draws that month. The new guidelines that allow for multiple participations essentially freed up even more liquidity and reduced the amount of risk we needed to take when doing securitizations. Lastly, we’ve seen quicker turn times for assignable buyouts. Ginnie Mae requires issuers to purchase HECM loans out of pools when the loan balance, including principal plus any accrued interest and MIP, reaches 98 percent of its “maximum claim amount.” If the loans being bought out are current, they can be assigned to HUD and the issuers are paid a claim. We’re essentially holding buyouts for a shorter period, which frees up additional funds.
RM: What distinguishes TMAC from other wholesale lenders?
BD: We are the largest family-owned and operated issuer, which comes with certain advantages. We’re very lean and this right-sized cost structure allows us to pass the savings on to our customers through better rates and prices. It also allows us to pivot quickly if the environment changes and do the right thing for our customers. Given our size and our focus on service, we’ve been able to create superior client opportunities and outcomes and better employee career opportunities.
RM: What plans does TMAC have in 2024 to expand its footprint in the reverse mortgage marketplace?
BD: We plan to continue closely monitoring the economic landscape and setting our sights where we see the most opportunity. This applies to both volume origination, channel diversification and strategic hires. For now, we’re going to continue to expand into wholesale as we continue to realize the benefits of our recent focus on it and pick up momentum in this segment.
