In response to the abrupt shift away from the London Interbank Offered Rate (LIBOR) index and toward the Constant Maturity Treasury (CMT) index, reverse mortgage loan origination system (LOS) software provider ReverseVision has updated all documents that reference an index to support both LIBOR and CMT indices.
While the shift to a new rate index — albeit one used previously by the industry — was disruptive for many active within it, ReverseVision was able to pivot rather quickly to the change because of the way its software is constructed. This is according to Jeff Birdsell, VP of loan programs at ReverseVision.
“Facilitating lenders’ transition to CMT rates has not been disruptive to our organization because the ReverseVision platform is designed to support multiple index options,” Birdsell explained to RMD. “ReverseVision has always given lenders the ability to create HECM products that are tied to the CMT or switch the index within an existing product from a LIBOR to a CMT.”
The shift also saw the company update its product administration application, ReverseVision Administrator (RVA), so that lenders have the ability to transition their product index settings based on a “trigger” date which can include the time of application or loan closing date. Thesis way, the LOS can support both indices on a specified date.
The process of re-integrating CMT into the software required the performance of a quality assurance examination of the software, so that appropriate elements could be updated based on changes since the last time CMT was used as the primary index of the reverse mortgage industry.
“Because the CMT was out of use for many years, our staff performed audits of historical CMT index values and effective date in addition to TILA document values to ensure accuracy,” Birdsell said. “CMTs are the foundation index of the Home Equity Conversion Mortgage (HECM) program and have lived in our software since it was originally created. We simply had to dust it off a little.”
If another rate index shift takes place in 2021, potentially toward the reverse mortgage industry’s preference of the Secured Overnight Financing Rate (SOFR), ReverseVision is confident that it will be able to meet that need when it arises, Birdsell said.
“ReverseVision’s architectural design allows us to easily add SOFR indexes once they are available and approved for HECM use,” he said. “In fact, lenders can add any index to their implementation of ReverseVision via RVA, making it available to lending programs the same day. When lenders eventually move to the SOFR index, the process will be very similar to the transition lenders are making to the CMT today.”
ReverseVision does not expect the Government National Mortgage Association (GNMA, or “Ginnie Mae”) to impose a “hard cut-off date” for the CMT index as they had done for the LIBOR, Birdsell said.
“We expect the transition to SOFR to be more proactive,” he said. “And for private loan programs, as they transition from a LIBOR index, lenders have the option to create and maintain their own replacement index.”