New England Banks Counter Fixed Rate Reverse Mortgage Trend

While concerns have arisen lately concerning the growing number of fixed rate versus adjustable rate reverse mortgage products taken by senior borrowers, a report from Reverse Market Insight shows several New England towns have gone against the national grain.

The latest report from Reverse Market Insight (RMI), titled “HECM Trends September 2012,” lists the top-5 metropolitan statistical areas (MSAs) with at least 100 Home Equity Conversion Mortgages (HECM) endorsed January through September. Ranked by the proportion of ARMs in relation to total HECM endorsements, four of the top five cities fall in Connecticut, Massachusetts and Rhode Island.

ARM percentages in these areas range from 59-66% of total loans, compared to the national average over the same period of 30%, according to RMI. 

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The majority split of ARMs in New England challenges the FHA’s concerns regarding the rising number of fixed rate reverse mortgages.

RMI notes the increasing percentage of ARMs for this region can be attributed to a domination of bank lenders as opposed to independent mortgage lenders in the area. 

“For the 5 MSAs, banks were involved at a 60% higher rate than national figures. By contrast, the bottom five MSAs showed less bank origination than national average by about 50%,” said RMI President John Lunde. 

Overall, reverse mortgage volumes fell 25.4% year-to-date to 40,804 units, compared to the 54,702 recorded in September 2011

Written by Jason Oliva

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  • What makes all HECMs risky to HUD is not the type of product.  It is the market value and termination costs related to collateral which is threatening the MMI Fund.  If home values had by rising by 4% per year as reflected in the old FHA model, the HECM portion of the MMI Fund would be safe and secure.  What has killed the MMI Fund is the slow turn around in home appreciation nationally.

    It would be easy for adjustable rate HECMs to become much riskier to HUD than fixed rate by substantial increases in the note interest rates.  The percentage of adjustable rate HECMs active and outstanding as of September 30, 2012 was over 73.5% of all active and outstanding HECMs.

    As to the percentage of new endorsements of fixed rate HECMs to adjustable rate HECMs in various parts of the country, the truth is the endorsement percentage of all fixed rate Standards to all Standards endorsed for each and every fiscal year since their introduction in fiscal 2007 has been on the rise.  Who cares about areas where acceptance of fixed rate HECMs have been slower than other parts of the country?  

    Does anyone really expect the percentage rise in fixed rate endorsements for a fiscal year to start down any time soon?  The real question is whether the percentage of fixed rate Standard endorsements in the highlighted areas has been going up or down in the last six fiscal years.  Most likely it is not the type of origination company involved but rather the financial outlook and needs of borrowers in those areas which make fixed rate endorsements so currently low. 

    Are the areas “bucking” the trend by originating a lower percentage of fixed rate HECM than in prior years or are these areas just growing to the current percentages experienced in other areas more slowly?  If the percentages are rising more slowly then those areas are NOT bucking the trend; they are just getting there much more slowly.

    The conclusions on the statistical information above is based more on guesses than trend analysis.  Until someone does real trend analysis, this information is more interesting than meaningful.  If the trend analysis has been done, where is that information to verify the conclusions?  

    • Hard to draw a conclusion from the data we have available on this stat, so it’s always a cautious attempt to read between the lines.

      One particular theory would be that banks are more likely to see customers seeking HELOCs (or describe HECM as a HELOC product), so perhaps there’s already a pre-disposition there.

      We can only point out the correlation in this case, but causation is always a trickier matter.

      • Mr. Lunde,

        While the stats are interesting, percentages at one point in time throws little light on what is actually occurring and why.  It is too bad this kind of information is not more diligently tracked.

        As to correlation, is it banks which are driving the result or is it the personal traits and character of the senior population?  What might prove your hypothesis is to analyze fixed rate endorsement by direct lender and then as a separate presentation by source, down to the TPO level if applicable.  Those presentations would be a real eye opener.  

        For sake of full disclosure, I do not and have never worked directly for any bank although my oldest son has.  As a real estate broker, I have worked as a sub agent in regard to mortgages for at least two banks.

  • Interesting stat.  This might imply that older homeowners have less traditional mortgage debt in these areas (less to payoff with the RM), and are more educated (make an informed choice between fixed and ARM).

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