Reverse Mortgage Rates Begin to Rise, Lower Proceeds for Borrowers

Over the last week reverse mortgage pricing has taken a dramatic turn for the worse as rates on bonds continue to rise.

“There has been a fairly large bond market selloff in past few days,” said Jeff Traister, reverse mortgage trader at Cantor Fitzgerald. A good benchmark for Ginnie Mae’s HMBS program is the 5-year U.S. Treasury bond, said Traister, which has seen rates go from 2.021% as of Feb. 1 to 2.385% as of Feb. 8.

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Source: Yahoo Finance

Due to aggressive pricing from lenders recently, some have been forced to pull back significantly as bond prices began to rise. “There were some lenders who had very aggressive pricing versus where they could execute with the street,” Traister said.

Part of the problem is that the industry is relying on the 5.09% coupon, which allows borrowers to receive the most in proceeds. If lenders started to raise the rate on the HECM fixed product, pricing would likely come back into line, but borrowers would see the amount of proceeds fall.  “We have rates going up, so we’re losing principal limit factors,” said Jeff Lewis, Chairman of Generation Mortgage. “Borrowers will likely never see the deal they had previously in terms of proceeds.”

Earlier rumors indicated that pricing had deteriorated due to Bank of America’s departure from the reverse mortgage business, but our sources say that’s not the case. Several people told RMD the trading desk was very active yesterday and a spokesperson for the Bank confirmed with RMD that it plans to continue trading Ginnie Mae’s HMBS product after the company closes its reverse mortgage division.

That suggests investor interest in the product remains, but rising rates is something the industry needs to get used to.

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  • There is only one way to go from here. Its been a long time coming, its going to be interesting to see how turn out. I have said most within our industry don’t understand how much rates affect the proceeds. Although, if rates continue they will soon learn : (

  • I did a scenario yesterday comparing the 2 available rates…after five years there was $9,000 less in balance on the higher rate because they are borrowing less, so one way to sell it to the client.

  • Rates rising, equity in homes falling, millions of shadow foreclosures coming to market, millions more homes to be foreclosed on this year and next, and on and on. The government’s (FNMA, FREDDIE, and HUD) role in the mortgage industry WILL be cut back dramatically. These are just a few of the things that will have a dramatic negative impact on the RM business and just a few of things that this site and readers are ignoring at their own peril.

    • Kevin,

      I think your comment is a little over the top. There are several of us who have commented many times in a manner very similar to you.

      Admin has on many occasions questioned the ability of the HECM endorsement volume to turn around until home values return. Most real estate spokespeople normally speak in rosy terms about the future BUT that has turned around to a great degree, (less than boldly) addressing at least a few of the harsh economic realities of the current real estate market.

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