The Federal Reserve on Wednesday raised the federal funds rate another quarter-point, lifting the target to 1% to 1.25% in the second of three expected hikes in 2017.
Citing recent inflation declines, greater household spending, and a steady job market, the Fed voted nearly unanimously to increase the interest rate; as in March, when rates rose from 0.75% to 1.0%, Minneapolis Fed president Neel Kashkari was the lone holdout.
If predictions hold, the Fed will raise rates one more time before 2017 is out as the economy continues its recovery from the housing crisis that began more than a decade ago. The federal funds rate, which in turn influences interest rates on everything from credit cards to savings accounts to reverse mortgages, had been historically low since the depths of the recession, when the Fed attempted to jumpstart the economy by providing access to cheap, easy credit: The target had sat at 0% to 0.25% from December 2008 all the way to December 2015. For reference, borrowers and savers saw interest rates of nearly 20% in June 1981.
“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” the Fed wrote in its announcement, before quickly adding a caveat: “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Back during the last rate hike, reverse mortgage professionals emphasized that second point: Shelley Giordano, chair of the Funding Longevity Task Force at the American College of Financial Services, said that when she first started in the Home Equity Conversion Mortgage space, interest rates hovered around 9%.
“I would say that it’s not a mortal blow to have higher interest rates,” Giordano told RMD. “We’ve had higher interest rates over the years.”
HECM originators, meanwhile, might begin to find themselves unable to offer the same kinds of closing-cost breaks that they had in the past, prompting Reverse Mortgage Funding education leader Craig Barnes to encourage brokers and lenders to emphasize the importance of mortgage insurance premiums to potential borrowers.
“When rates rise and originators are not able to cover as many closing costs as before, it’s increasingly important to know what those costs are,” Barnes told an audience at a National Reverse Mortgage Lenders Association event in May.
Written by Alex Spanko