Last week, the Intercontinental Exchange (ICE) Benchmark Administration published a new 10-year London Interbank Offered Rate (LIBOR) SWAP rate for the first time since February 27, which came in this week at an estimated 45% lower than the previously-published rate.
This presents a new opportunity for reverse mortgage borrowers to get a higher level of proceeds from their loans, and also allows some reverse mortgage lenders to go back to some borrowers who may not have qualified under a previous rate. Reverse mortgage lenders of all different sizes are looking at ways they can take advantage of the new rate environment as a result, with many describing a positive business climate
Opportunities for new borrowers
While the new LIBOR SWAP rate doesn’t fundamentally change the reverse mortgage business climate, it does enhance the fundamentals themselves. This is one of the benefits that has been gleaned by the number one reverse mortgage lender in the nation, American Advisors Group (AAG).
“The last few months have shown how quickly retirements can be jeopardized by market volatility, which has led to a wave of interest in non-traditional retirement solutions such as reverse mortgages,” an AAG spokesperson told RMD in an email. “We see that trend continuing, especially as seniors are looking at HECM line of credit options as a safeguard for their future.”
There has also been an uptick in seniors looking at reverse mortgage options to bolster existing assets that have been set aside for retirement.
“Senior homeowners are beginning to recognize the benefits of proactively tapping into their equity and using it alongside their existing retirement portfolio,” the AAG spokesperson said.
Opportunities for loan originators
The new potential opportunities for borrowers have also led to some lenders taking a more proactive approach in terms of marketing, since originators have the chance to benefit, as well. One such lender aiming to streamline borrower communications based on the new rate environment is Longbridge Financial.
“In both our retail and wholesale channels, our plan is to illustrate why now is the ideal time to get a reverse mortgage through various communication tactics highlighting how a lower rate translates into more available cash,” said Eve Kroepke, director of marketing at Longbridge Financial. “For example, for those borrowers who were not satisfied with an earlier quote, demonstrating how much more cash they may receive today is very compelling.”
Additionally for future borrowers who may also have higher existing mortgage balances combined with other debt, the new rate presents an opportunity for a reverse mortgage to work where it may not have in the recent past, Kroepke explained.
“This is a favorable time for borrowers to receive the best reverse mortgage terms and particularly good news for those facing unexpected financial challenges during this crisis. As well, we are working with our wholesale clients to help them leverage this opportunity to serve more clients and expand their business and have hired additional operations employees to meet service needs.”
While borrowers may be able to revisit reverse mortgage options that they may now qualify for on their end, this also means that originators can revisit previous leads that had to be set aside previously.
“This doesn’t change anything dramatically in terms of marketing since we’re still in the same business, but we’re going back to people who may not have qualified before at lower margins,” said Glenn Wallace, president of Nationwide Equities Corporation in Mahwah, N.J. “Because of the new rate, loan officers can make more money, and more people can qualify. Loan officers can go through their pipelines to see if [a reverse mortgage] can be made to work for some people now, and I think there’s going to be a boom. No doubt about it.”
Borrower perceptions and understanding of rate benefits
One of the ways in which it becomes easy to communicate the benefits of the new rate environment is in the simple relation to borrowers that there’s a chance their loan proceeds can now be higher. Originators are already starting to discuss the benefits with their clients by the time those borrowers are ready for reverse mortgage counseling according to Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp. in Agawam, Mass.
“The clients we are talking to are already aware of the additional proceeds available due to the rates,” Cosentini told RMD. “This is usually the case when this happens. This is a good opportunity for prospective borrowers who may have been short to close or didn’t see a big enough benefit in the past.”
Finance of America Reverse (FAR) plans on taking advantage of the current situation by making sure that prospective borrowers are aware of the potential increase in proceeds that could come their way.
“This is the first time since the big banks were active in our space that we are seeing general open mindedness about the product,” said Kristen Sieffert, president of FAR in an email to RMD. “It is very exciting to witness the sales cycles being shortened because consumers are quicker to understand the value of utilizing home equity to create a more wholesome and stable retirement. We see this moment as the right time to get our messaging out to a wider audience, and FAR is investing in expanding the reach of our marketing programs so that more people encounter the vast benefits our solutions bring to retirement.”
The uniqueness of this moment should also be fully recognized for what it represents for the reverse mortgage business, Sieffert added.
“This interest rate environment is unprecedented for the reverse space,” she said. “The last time rates were this low, HECM had an artificial floor of 5.06%. Now that the floor is lowered, there is a huge interest savings and cash increase available for borrowers that has never been available before. For context, the available HECM LTV for a 62 year old at a 5% is 41% but that jumps to 52.4% at 3%.”
Communicating the potential benefits to borrowers is especially important in a moment defined by economic uncertainty fueled by the COVID-19 coronavirus pandemic, where stability is needed now more than ever.
“To be able to secure a fixed rate loan or a guaranteed lifetime line of credit reverse mortgage, one that requires no payments beyond taxes and insurance but allows for payments if one chooses to make them, at rates this low creates so much stability for people during a period when they need it most,” Sieffert said.
Refining messaging within a reverse mortgage-centric organization is key to make sure that business can be expanded, and that potential borrowers are aware of a path to greater financial stability, Sieffert said.
“Our team will continue to refine the messaging that is best suited to these unique times and create relevant material in our partner portal Xcelelerate so originators can easily connect with their networks, update people of the current benefits, and grow their businesses while helping more people get to work creating their ideal retirement outcomes,” she said.