Only a few days into 2009 and it’s clear that there is going to be some changes to the reverse mortgage business. One of the biggest changes for the originator is the move to “live pricing”. I covered the changes a couple weeks ago when Generation made the switch, but last week we saw a flurry of announcements from other wholesalers making the change.
Now, the reverse mortgage business mirrors the “forward” business with daily rate sheets, lock extensions, ect. Wholesalers are taking different approaches in terms of how many days you can lock for but one thing is the same across the board… margins are going up.
Dennis Haber commented about this on his blog earlier this week
Many are dismayed that the margins on the HECM program keep going up. People ask, “Do they really have to increase”? Some say that the margins are purposely going up at a time the interest rates are low. The thinking goes that many in the industry will not care, as the expected rate is well below the floor. However, what happens when those indices upon which those margins attach go up as well? The point is eventually rates will have to go back up. And when those rates go back up, it will eventually significantly decrease the benefit amounts going into the pockets of our clients.
And rates will go back up. If not to combat the threat of inflation, then to provide a better return for those countries that have invested in our treasuries. The answer to the interest rate queries noted above is that the market is dictating these results. This answer, however does not satisfy everyone.
Whether you agree with Dennis or not, it’s clear that the deterioration in the capital markets and lack of liquidity has created the need for higher margins on both CMT and LIBOR products.
“These higher margin products and higher asset premiums will allow for improved profitability for all wholesale and correspondent companies, while at the same time increase principal limits to the senior” says David Brindley, VP Strategic Account Manager at Generation Mortgage. “With the extraordinary rally in the 10 year sector of the treasury market, expected rates continue to be below HUD’s mandated 5.50% floor,” added Brindley.
I spoke with another executive from a leading lender who said that FNMA’s move to higher margin products sends a clear message about moving the industry to more “profitable” business. While I wasn’t able to confirm this with FNMA, it’s clear that 2009 will bring lots of changes to the business. Lets all hope that “profitability” is one of them.