The concept of a hybrid product is a welcome addition from the viewpoint of many reverse mortgage originators. It would offer the borrower a greater range of options besides just fixed rate and adjustable rate products—a discrepancy between which has grown over the course of the last two years.
The exact terms of such a product have yet to be outlined, but National Reverse Mortgage Lenders Association executives told attendees of the association’s eastern regional conference in March that the industry had brought the idea to a meeting with White House officials in order to gauge interest in moving forward with such a reverse mortgage that would allow for an upfront, fixed-rate draw, followed by subsequent draws under an adjustable rate.
“Any time you expand the range of product offerings, it allows more choice for a consumer and the burden of learning the product, understanding how it works and properly educating the client falls to the lender, which it should. As an industry, we should embrace additional products, not fear them,” says Paul Fiore, vice president of sales for American Advisors Group. “I look forward to additional product offerings that could potentially help more borrowers, however, without seeing a product matrix and truly understanding the loan terms, it is hard to determine what kind of impact it could have in the market.”
Increasing options for the borrower is an upside, many originators agree, in a market where upwards of 65% of new borrowers opt for the fixed rate option.
“We would welcome a hybrid program,” says Mike Wyrostek of MSI Mortgage Services. “The more flexibility we can give a reverse mortgage borrower, the better. I am not the biggest fan of the fixed rate, because the borrower only has one choice and that is to take all the money out at once.”
Providing options, especially for those borrowers who currently have a mortgage that must be paid off, is the main upside originators see.
“The hybrid would top any reverse mortgage product available today,” says Brian Cook, reverse mortgage advisor with Seattle-based Pinnacle Mortgage Planning. “For a senior borrower who has a mortgage and wants access to their equity through a line-of-credit, it would add a significant amount of peace-of-mind to those that are worried about future interest rates. The hybrid product could be a game changer that the industry hasn’t seen since the introduction the Saver product. “
The details, however, will become essential, if the product does gain interest from the Department of Housing and Urban Development, a hope that NRMLA expressed at the March meeting.
Then there is the question of selling it to investors.
“If it makes sense for the consumer, there will be acceptance in the capital markets and it will be priced according to anticipated prepayment behavior,” says Darren Stumberger, managing director at Knight Capital Group. “Typically the market likes to sift through performance data before new products trade in line with their fundamental or inherent value”
The most recent new product, the Saver, has taken many months to gain traction, but investor demand is increasing, he says.
“The gap between Standard and Saver is beginning to meaningfully narrow given 12-14 months of observable data.”
Written by Elizabeth Ecker