Reverse Mortgage: CMT or LIBOR?

Last week lenders offering CMT based HECMs either adjusted their pricing or released new higher margin products… why? The last company buying CMT product, Fannie Mae, just pulled back on their pricing. I’ve been told by several people that their previous pricing was almost too good to be true, and is most likely the reason you saw Financial Freedom eliminate their LIBOR products and switch back to CMT. But now that their pricing has been pulled back, should you be taking an application for a CMT product or LIBOR? Hmmmm… lets take a look.

Below is a summary of a 70 year old borrower with a $200,000 house and no mortgage balance:image

In this scenario the CMT based HECM will get the borrower an extra $212, so that’s the better choice right? Maybe. Remember the LIBOR products are paying you more on the back end which gives you the flexibility to structure the deal for the borrower (pick up some costs, ect.). Are most of you still originating HECM products or LIBOR? Survey below. Click to RMD to vote or see the results.

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  • You really should do a little more research before publishing a comparison. 50bs for CMT 150?

    Also you must take into consideration how the borrower is taking their money and interest that is charged to the balance over time.

  • I must say that I agree with the comment above. First of all, comparing a Libor 150 to a CMT 150 is like comparing a Ferrari to a Fiat. The Libor 150 is way more equivalent to a CMT 200 than a CMT 150 which pays the customer more and the broker more than the Libor the way rates are at this time.

  • To answer your question in the first line of your post, they pulled back pricing because the yield is too low and is forcasted to remain low for the near future. In order to sustain pricing, they need to raise the yield (AKA margin).

    Moving on, it’s not necessarily what we want to originate, it’s what is being funded by our banks that leaves us with a small choice. LIBOR was supposed to be the “wall street friendly” product since investors borrow at LIBOR and can calculate/forcast their spread and margin easier. That’s changed in the last few months and the remaining banks funding LIBOR products will need to follow suit with the investors need and change back to CMT: otherwise they’ll get stuck with a portfolio of loans that no one will buy.

    ***Since the difference is nominal between the two products, it shouldn’t matter what is sold. We need to remain profitable as a company in order to continue providing this program and our services to the seniors. Whatever the investor wants and is willing to pay the most for, is what they’ll get.

  • Which product should you offer? You should offer the one that is best for your senior client. You can’t claim ignorance if you didn’t take the time to compare amortization tables and study what spot rates are all about. Comparing programs and scenarios is the only way to serve your client fairly. It may have been all right for loan officers in the forward world to offer different interest rates, different fees, to various borrowers. It’s about front end money, back end money, etc., But we’re dealing here with seniors who deserve our very best, and if you want referrals, it’s best never to have to remember which program you offered which client. Remember, people talk. And for me, I want the “talk” about me to be good!

  • I am a senior trying to figure out CMT vs Libor.

    On the comparison sheet my originator gave me it seemed that Libor was more to my advantage. However, the European Union is having an agreement problem.
    I am also considering that Bernanke is not afraid of low interest rates . . . . . . ???

    Any advice here is appreciated . . . big time.

    Thank you,

    B. Deahl

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