Fannie Mae announced some significant pricing changes yesterday, just a few days before lenders will make the switch to mandatory delivery for live pricing. The change brings higher margins to the reverse mortgage industry with some lenders offering CMT based HECMs with margins as high as 3.75%.
According to people who attended last weeks NRMLA conference in Boston, one of the messages taken away from the event was that Fannie Mae doesn’t want to be the only investor for reverse mortgages. The significant change in pricing could signal that Fannie Mae is looking to attract other secondary market investors.
Our industry has relied almost entirely on Fannie Mae for the past 12 months and having one investor to sell loans to is never a smart strategy. However, even when companies like Goldman Sachs were still interested in purchasing HECM production, executives form the company were shocked at the pricing offered by the GSE.
So will the higher margins attract interest from other investors? People in the industry are confident it will. “Long term, the changes are better for the industry,” said David Peskin, CEO of the Senior Lending Network. He added, “By having more than one take out there is less risk for lenders and competition from other investors will help drive margins down for borrowers in the long run”.
Fannie’s pricing adjustment also makes the LIBOR index much more attractive to HECM borrowers. For most wholesalers, par pricing is about .5% lower in rate on LIBOR products compared to CMT based HECMs.
Even with the pricing changes, historically the rates for HECMs are still low. However, I do understand everyone’s frustration with having to re-disclose to borrowers and explain to them why they’re getting a higher margin product. Everyone wishes there was an alternative, but when there is only one investor… there isn’t much we can do.