Originators See Rate, Margin Variation as Reverse Mortgage Changes Shake Out

In the aftermath of the reverse mortgage rule changes last October, originators are still waiting to discover where expected rates and margins will settle as they adapt to the new landscape.

For now, many are seeing the figure fall in the 4.5% to 5.5% range, with a margin between 1.5% and 2%.

Harlan Accola, national director for reverse mortgages at Madison, Wis.-based Fairway Independent Mortgage Corp., said that it is hard to predict where numbers are going to land by the end of the year.

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“Most of our expected rates are falling around the 5% to 5.5% rate area,” he said. “I don’t think things have really settled in there yet with the increases in the 10-year swap rate.”

For borrowers, the most significant changes to the program came in the form of lower principal limit factors and updated mortgage insurance premiums. On the origination side, margins and rates have taken on greater importance in the reverse mortgage world in the wake of the rule changes, which saw the so-called “rate floor” at 5.06% collapse; under the new system, changes in the expected rate affect the eventual principal limit all the way down to 3%.

Competition came swiftly, with RMD finding margins in the 2% to 2.25% range last December, just two months after the changes took effect — though some originators were hearing of margins as low as 1%.

Asked this summer about the competitive landscape, Bruce Simmons, reverse mortgage manager at American Liberty Mortgage, Inc. in Denver, said that many players in the industry are currently pricing above the floor to some degree.

“As far as the pricing of loans goes, I don’t think anyone can price at the floor right now with the index at 2.97% and the floor at 3%,” Simmons said. “The majority of my loans are priced between a 1.5% and 2% margin.”

Tim Linger, owner of HECM Senior Home Financing in Orlando, said he suspects that the expected rate will shake out at approximately 5.5% within a year and at 6% in two years, based on a 1.875% margin.

Mac Tennant, co-founder of Access Reverse Mortgage Corp. in Clearwater, Fla., said that he was seeing an expected rate of 4.47% with a 1.5% margin.

“We have seen, occasionally, margins as low as 1% from competitors, but most are in the 1.5% to 2% margin range, I think,” he said. “The highest PLF today is with the 4.18% fixed, but the revenue on that is getting really low, so I’m not sure how long we’ll see it.”

Written by Maggie Callahan