With now six weeks of applications following the suspension of the fixed rate standard reverse mortgage implemented April 1, the market is recalibrating to a proportion of adjustable rate loans that skews upwards of 90%.
While data from the Department of Housing and Urban Development has yet to be published with any conclusion about the loan mix, anecdotally lenders are reporting in some cases, 90% of new applications are for adjustable rate reverse mortgage loans.
The outcome is in contrast to initial predictions by some market participants that indicated a breakdown more along the lines of 50% adjustable rate loans and another 50% comprising the fixed rate Home Equity Conversion Mortgage Saver product.
“I think the difference between earlier projections of an even split were over-emphasizing borrowers’ preference for fixed rate predictability versus maximizing cash available,” says John Lunde, founder and president of Reverse Market Insight.
An initial tally based on activity post-April 1 confirms the estimate of roughly 90% adjustable rate loans, according to RMI’s research.
But the percentage borrowers take upfront will be the most important factor from the standpoint of HUD, executives said during the National Reverse Mortgage Lenders Association conference in Irvine, Calif. last week.
“What we are all waiting for is new utilization applications post-April 1 and looking at utilization of borrowers,” said Colin Cushman, president and CEO of Generation Mortgage.
Prior to April, adjustable rate reverse mortgages insured by FHA represented about 50% utilization at closing, Cushman said. If the proportion remains close to the utilization level prior to April 1, that would be seen as a positive outcome based on the changes implemented.
“If average utilization goes to 80%, that suggests borrowers are taking a full draw ARM and the value of policy would be diluted,” Cushman said. “We are hoping the proportion relieves overall pressure on FHA.”
Written by Elizabeth Ecker