Pending the elimination of what has been of late the most popular reverse mortgage product, investors for reverse mortgages and reverse mortgage securities will likely not be hindered by the changes, say those who work in the secondary market.
The fixed rate standard product, which, following changes mandated by the Federal Housing Administration, will no longer be available as of April 1, has experienced strong investor demand throughout the life of the product, as have the securities comprising the loans.
Now, the industry is anticipating closer to a 50/50 split between adjustable standard mix based on the remaining options available to borrowers.
While it may take some time for investor demand to adapt to the new product landscape, a shift toward the Saver, which has historically made up just a fraction of the loans in the market, is unlikely to suffer in the long term.
“Expect a marketplace that looks like a better balance between Saver and Standard loans—something like 50% Fixed Savers and 50% Floating Rate Standards. The Libor Standard will be a higher utilized loan versus what we’ve seen previously. If folks don’t need all of their funds upfront and prefer a fixed rate, the Fixed Saver should be a more suitable fit,” says Darren Stumberger, managing director for Knight Capital Group.
Investors may have to shift expectations slightly, which may take time, he says.
“On the investor side, there are accounts that want to wait and see how everything pans out given how dominant the fixed rate standard was, on the flip side there are accounts buying as much Saver as possible given the expected tightening,” says Stumberger. “The marketplace for LIBOR Standard is already mature and there’s plenty of demand for this asset.”
That adjustment could take about a year, says John Lunde, president of Reverse Market Insight, as investors reassess the demand for different product types.
“It might take a year or longer to see that play out as investors get updated data on Fixed termination speeds unfortunately, but possible faster,” Lunde says.
Written by Elizabeth Ecker