While lenders have reported an increase in general interest around reverse mortgages during the COVID-19 pandemic, both from prospective borrowers and financial planning professionals, several factors are also leading to an increase in refinances of existing reverse mortgages at the same time.
Given the pre-pandemic climate and subsequent economic downturn, the market has seen an uptick in existing borrowers looking to refinance their Home Equity Conversion Mortgages, according to data tracked by Reverse Market Insight, a reverse mortgage industry research firm in Dana Point, Calif.
HECM-to-HECM refinance transactions were 18.8% of endorsements in the first quarter of 2020, up from 4.2% a year earlier and 13% in the fourth quarter of 2019, RMI data analysis shows.
“We’ve definitely seen an increase in reverse-to-reverse refinances in the past few months,” says John Lunde, RMI president and co-founder.
Some of the uptick may be due to factors present prior to the pandemic, while some interest may be related to the crisis itself.
In terms of interest in refinance transactions prior to the pandemic, Lunde attributes the increase to two things.
First, interest rate margins on HECMs had a period of increase as lower index rates allowed lenders to maximize lending limits for borrowers at higher revenue levels.
“This provides funds for paying costs at closing for borrowers and also marketing initiatives to reach more existing borrowers for refinance,” Lunde says.
Second, an onslaught of proprietary product enhancements introduced as market competition increased in the private market prior to the pandemic created higher PLFs and lower interest rates for many borrowers. Some of those with existing proprietary loans found an incentive to refinance them largely due to the interest rate environment.
“The movements to increase PLF and reduce interest rates on proprietary products have gone away in the pandemic so we’ll just have to see what happens on this front as things normalize,” Lunde says.
Scott Harmes, national sales manager for the C2 Reverse division of C2 Financial Corp. in San Diego, Calif., has noticed an increase in interest in reverse-to-reverse refinances across his client base, some of which may be directly related to the stay-at-home orders in place to prevent disease spread.
“There’s definitely more interest,” Harmes says. “People have downtime at home right now, and they’re being more circumspect. They want to make sure they’re safe.”
In addition to being in a more cautious, planning state of mind, COVID-19 has caused people to really take stock of their assets, according to Harmes.
“The pandemic is making people look more deeply at their assets, the stability of their assets and how to access those stable assets — [and] home equity is one of those assets,” he says.
Written by Meredith Landry