Higher Interest Rates & The HECM Industry’s Response
Let’s face the fact- Americans are addicted to cheap money- builders, borrowers, homebuyers, and yes, reverse mortgage professionals.
The proven relationship between interest rates and mortgage lending is well understood by both mortgage professionals and the general public. The lower the interest rate, the more borrowing power the consumer has, and of course, the easier homebuyers and those seeking to refinance can qualify. Why should we concern ourselves? Simply put, because as the nation’s gross domestic product or GDP rises, interest rates will follow.
Download the video transcript here.
3 Comments
First, the HECMs endorsed since September 30, 2008 (10 years) are just under 595,800 while the total cumulative total of all HECMs endorsed through September 30, 2008 was just over 458,300 endorsements which is total cumulative endorsements of just under 1,054,100 as of September 30, 2017.
Second, despite all the hubbub about the value of the growing line of credit, HECM demand is based more on principal limit factors than any other feature. So as the Fed interest rate rises (if that is indeed what happens) and HECM expected interest rates rise (if they do), we should expect demand to drop perhaps not as rapidly as it did over a decade ago, but there should be negative consequences to significant rate increases.
It is hard to believe that several academicians have stepped forward to tell us that the October 2, 2017 changes are not of much concern after some initial shock. While this fits in with the message that those who profit from originations, as originators, our perspective is a little more rational in conformity to our needs and best interests. It seems we need to take a grain of salt with what even the academicians predict in this time of change; their interests are at times different, even much different, than our own.
Happy New Year to all and best wishes for a profitable and productive year in the world of HECMs.
Shannon,
Good presentation for the start of 2018! I agree with your scenario for the future, I don’t know how it could go any other way, baring an unforeseen catastrophe!
I am optimistic we have the ability and the opportunities out there to pull 2018 into favorable territory!
Thanks Shannon,
John A. Smaldone
http://www.hanover-financial.com
Hey John,
Happy New Year!!
It is great to be positive about the New Year but please share with us what allows your optimism to reign? One of the greatest liberal universities in our country calls itself optimistic, no matter what the circumstances.
I am not against optimism or pessimism as long as there are grounds for either. For example, the DOW went up 25% last year. For most 401(k) participants and beneficiaries, that means that their vested asset base rose as well with some even greater than 25%. One is just a consequence of the other.
Now let us look at HECMs. Fiscal year 2017 ended with principal limit factors dropping for most potential borrowers who are currently over 62 years old. Also upfront MIP rose 400% to 2% on the Maximum Claim Amount. It would seem that would call for at least some disquieting if not out right pessimism. Then there is what Shannon just described in the way of future rises in the expected interest rate.
Again perhaps you have insight that counters the last paragraph. If so, please share it. If not, then it is OK to say you believe such and such but you have not even done that.