Reverse Mortgages Issued Under New Rules Outstrip Old, Age Gap Narrows

Reverse mortgages issued under the new, post-October 2 principal limit factor rules have surpassed those originated under the old structure, according to a new analysis from Baseline Reverse.

Among the 6,339 loans securitized so far in 2018 — which includes data from January, February, and March — 3,642 were originated under the 2017 PLFs, with the remaining 2,697 issued under the old, higher principal limits. That’s a shift from the January data, which showed 2017-vintage Home Equity Conversion Mortgages accounting for just 45% of the overall total.

More promisingly, a shift toward older borrowers seen in last month’s data seems to be moderating, according to Baseline Reverse founder Dan Ribler.

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“It looks like the trend was more an anomaly than a trend, and it looks like the good news is that younger borrowers are not being scared away by the program changes,” Ribler told RMD. “The impact is not age-specific, which is excellent.”

In addition, while the HECMs originated under the new rules show a greater prevalence of lower adjustable-rate margins — validating industry concerns about fiercer margin competition in the post-October 2 landscape — the typical margin seems to be settling in the 2.5% to 2.75% range.

It’s true that some lenders have offered low margins, including a few loans at 1%, but Ribler said that hasn’t taken hold across the industry.

“Somebody did it, but I don’t think the market has reset to a 1% margin,” he said.

So far, among loans securitized in January and February, reverse mortgages originated under the new rules have an average maximum claim amount of $317,485, as compared to $348,551 for those issued under the old, 2014-era principal limit factors.

Principal limit factors among the new-rule loans came in at an average of $162,640, against $205,083 for the old-rule loans.

Written by Alex Spanko

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  • Less than 6,400 total HECM securitized for two months is NOT good news. However, things are much worse than that since only 3,642 HECMs securitized in January and February is an annual endorsement rate of less than 22,000 HECMs annually or an average of about 1,820 endorsements per month.

    Securitization normally happens about two months before endorsement. If anything, the article indicates how bad the endorsement picture can be for the remainder of fiscal 2018.

    It is doubtful if the downturn will stay this low before the start of fiscal 2019 but the endorsement downturn of fiscal 2018 is likely to be worse than downturn of either fiscal 2014 or fiscal 2016 despite the great endorsement start of fiscal 2018.

  • I am surprised no one is talking about the rising rates. On January 1, 2018 the 1 year libor rate was 2.101% compared to this weeks rate of 2.663%. Over a half point rise in a little over 4 months. The swap rate was 2.440% and is now 2.830%.
    This is also cutting into the principal limit factors and margins need to stay lower for this product to be viable.

    • treverse,

      Well said.

      Soon the index portion of the expected interest rate will likely exceed its 3% floor. Today’s HECM is yesterday’s Saver with a lot more restrictions and substantially higher upfront costs.

      It is amazing how many originators in the Saver era told us they did not know how to sell a Saver. Now they MUST do it without a Standard as an option.

      If selling a Saver was a challenge, ….

  • I agree with “treverse”, very surprising no one is talking about the Libor rate and the swap rate comparison spreads between January 1st, 2018 and present day?

    The PLF have been strained enough with the October 2nd, 2017 ruling. Coupled with the Libor and Swap rates where they are today! Eyes should be raising and certain department heads need to reappraise the new PLF tables and ruling, soon!

    The lack of movement to change parts of the new ruling, seemed to have been ignored and only our seniors and the industry as a whole are being effected adversely!

    On the other hand, it is very good news is that younger borrowers are not being scared away by the program changes. If these statistics are accurate and the the impact is not age-specific, that is excellent.!

    This means that a great deal of negativity is caused by us and the media. However, the PLF issue still is a must to be addressed. No matter how encouraging the news is on the younger borrowers, the PLF situation is going to play a major factor in who can qualify or not. The shortfall and the LESA amounts are not only bound to come into play but they are already!

    John A. Smaldone
    http://www.hanover-financial.com

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