5 Questions Homeowners are Asking Before Retiring

5 questions pre-retirees are asking



The 5 Questions Your Sixty-Something Homeowners are Asking? Are you prepared?

It’s not a mistake that the age of eligibility for the federally-insured reverse mortgage is 62. Americans in their sixties begin to seriously consider the merits of continued full-time work against the rewards of a more leisurely lifestyle. Here are five factors each pre-retiree is likely to contemplate before bidding farewell to report to work each day.

First is their retirement readiness. One facet that’s typically ignored in favor of crunching numbers is psychological preparedness. Newly retired individuals can begin with feelings of excitement and anticipation only to fall into a morass of depression, anxiety, and restlessness. Aging expert and author Sources of Income/Cashflow says, “people spend more time planning a wedding than planning retirement. It’s very important to think about your identity and what you’re losing, and how you get a new identity. What would give you a sense of meaning and purpose?” Next is financial readiness which is typically determined by creating a post-employment budget. This will include reliable sources of monthly income throughout their retirement years. The good news is their expenses may be considerably less when factoring in they’re no longer raising children or incurring ongoing costs related to employment such as transportation.

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Second, are sources of income and cash flow. Some may decide not to completely disavow employment and instead find part-time work. One retiree I know took a job at the local historical society- a job she finds much more enjoyable than her previous career. Typical income sources are defined pension benefits, investment dividends or distributions, royalties, Social Security, and distributions from 401(k)s and IRAs. The magic of the reverse mortgage is that it can help close many gaps in monthly cashflow that are often found when considering retiring. A portion of the home’s illiquid value is converted into an available standby line of credit, monthly tenure payment, or simply retires the burden of an existing monthly mortgage payment. Of course, those pesky property taxes and insurance do remain until death or home do you part.

The third question almost every soon-to-be retiree faces is when to begin taking Social Security benefits and that question hinges on whether to take full or reduced benefits. As the ratio of retirees to active workers continues to grow Uncle Sam has moved the goalposts over the years with those born before 1938 being able to take full benefits at the age of 65, and younger retirees seeing a graduated reduction based on age. Some look to not only their need for the monthly benefit but their likely life expectancy with those in poorer health opting to start sooner rather than risk dying before collecting a full benefit. As a reverse mortgage professional you will want to avoid giving advice on when to begin drawing benefits, but again, knowing the considerations involved is useful to understand the homeowner’s mindset.

The fourth consideration revolves around Medicare. Fewer workers are retiring with a medical insurance benefits package. The good news is they can enroll in Medicare at the age of 65 and purchase a Medicare supplement policy that is typically much less expensive than the private insurance premiums they would pay individually.

Fifth, and lastly are Required Minimum Distributions. Did you know that while 401(k) and IRA deductions reduce taxable income distributions must be taken to avoid penalties, in many cases up to 50%?! For decades retirees had to begin taking distributions or payouts from these accounts at the age of 70 1/2. However, thanks to the 2019 SECURE Act and increasing life expectancy that age is 72. Some younger retirees in their early sixties have postponed taking money to avoid more taxable income from these accounts while allowing them to grow by using a reverse mortgage. Either way, the money must be systematically withdrawn.

Understanding these five factors can help reverse mortgage originators increase their confidence when working with both financial professionals and homeowners. Be mindful to stay in your lane not providing unlicensed advice but also recognize that your foundational grasp of these basic concepts will not go unnoticed.  It will help not only build rapport but trust and efficiency in helping shape a plan that best meets the need of the homeowner.

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Why California is the future of the HECM Fund



Why California will shape the future of the HECM in FHA’s Insurance Fund

A few things are undeniable and established truths; one being the valuation of FHA’s Mutual Mortgage Insurance Fund is extremely sensitive to even the most modest changes in home price appreciation. Don’t blame the messenger. Blame the math. The mathematical assumptions where a mere 1 drop in home appreciation reduces FHA’s insurances fund’s capitalization ratio by 1.3%. Applying a hypothetical stress test FHA’s report to Congress reveals market conditions similar to 2007 would completely erase the Mutual Mortgage Insurance Fund’s positive six-percent capitalization ratio down to a negative .63 percent.  Knowing this it’s easier to understand the agency’s reluctance to grant repeated requests from housing lobbyists to further reduce premiums. It’s clear that a higher capitalization ratio is needed to weather the storms of economic uncertainty.

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Today much of that uncertainty is focused on the long-term impacts of the coronavirus pandemic on the American economy- more specifically unemployment. After all, it’s employment that is the linchpin of the housing market. After all it’s difficult to make your mortgage payment without a full income. Though receiving less attention than the overall improvement of the fund’s improvement in valuation FHA’s report addresses three potential risks that could boost future claims: First is a reversal of home price appreciation (a fall in values) triggered by a flood of distressed properties coming on the market. FHA reports to have over 900,000 loans in serious delinquency- those are loans over 90 days delinquent. Second, are more unemployed borrowers than projected. These homeowners would place strain on the fund not being eligible for loss-mitigation having no income to resume making monthly payments. Third, too many borrowers opting to take a full twelve-months of mortgage forbearance under the CARES Act which terminate in a short period of time. The report states “A gradual unwinding of forbearance would be a preferred outcome, as it would be less likely to cause the market disruptions”.

Two other market risks should be noted. First, is the ‘California Factor’. FHA’s annual report notes that federally-insured reverse mortgages are much more geographically concentrated than their traditional FHA counterparts. California alone represents just over 35% of all endorsed HECM loans based on Maximum Claim Amounts.  The other 25% of total MCA volume comes from Florida, Colorado, Arizona, and Washington State- this means five states account for sixty percent of HECM endorsements by MCA in 2020. “As a result, future HECM performance will most likely be more reliant on economic factors such as house price appreciation in these concentrated states, particularly in California where the share of HECM MCA is almost five times greater than Colorado, the state with the second-highest share at 7.38 percent.” To monitor the future financial health of the HECM portion of FHA’s insurance fund, look to future home value trends in these states, especially California.

Next week we will examine the 2020 Actuarial Review of the HECM portion of the MMI Fund, more specifically we will examine why despite rising home values and low interest rates potential causes of why the HECM’s valuation actually dropped significantly since October 2017 HECM changes. In the meantime, we leave you with the words of Seneca- “The whole future lies in uncertainty – live immediately”. Let’s find what can be accomplished today and approach it with vigor and tenacity.

FHA’s Report to Congress on the Financial Status of the Mutual Mortgage Insurance Fund [READ]

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BREAKING: FHA Annual Report with Narrated Video Summary

reverse mortgage news FHA annual report



FHA’s 2020 Report Shows Marked HECM Improvement

During NRMLA’s Virtual Annual meeting last week. Deputy Secretary of Housing and Urban Development Brian Montgomery’s comments last Tuesday reinforce a common theme heard since 2009. Viability. Referencing the continued strong demographic demand for HECMs Montgomery said, ‘so long as the program is built to be viable. He added, “In the end, we must protect seniors who depend on the HECM while ensuring our program’s financial strength can endure market cycles without taxpayers picking up the bill.”

In the effort to avoid the HECM requiring further subsidies to remain economically viable HUD & FHA have an established history of pulling to levers to reduce the program’s risk of future losses or insurance claims: reduced principal limit factors, and restructuring FHA mortgage insurance premiums. Other measures included the elimination of HECM products, financial underwriting requirements, and reducing the interest rate floor. Weeks following the unwelcome October 2017 HECM PLF cuts were enacted key one industry leader pointed to unaddressed problems in the ‘back-end’ of the program- specifically a backlog of unprocessed HECM loan assignments- this months prior to the appointment of FHA Commissioner Brian Montgomery. In May 2019 Montgomery announced the good news that the backlog of HECM claim assignments was clear and expressed cautious optimism of the program’s future financial viability.

While industry watchers were grateful that the logjam of assignments had been cleared, many expressed continued concerns of continued servicing issues from HUD’s appointed servicer citing abandoned properties, unauthorized occupancy of homes by relatives, and the deterioration of properties securing the loans that languish as REOs or real-estate owned properties.

However, in the short term, there’s good news.

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Strong home appreciation throughout the fiscal year 2020 and low interest rates. Higher home values increase the equity buffer between a HECM’s loan balance and the asset or home value and low interest rates help slow that gap being closed by accrued interest and negative amortization. Knowing these economic conditions help to significantly improve the HECM’s Net Present value it’s logical to conclude we are facing significant risks- especially should the housing market erode in the coming year. In his presentation last week Montgomery cautioned, “While I believe there are positive effects of both our policies and a robust housing market, the coronavirus and loss of employment have produced serious headwinds. We know that pro-cyclical forces can provide a false sense of security.” He also referenced stress tests. Stress testing models how a bank, corporation, or the FHA insurance fund would potentially perform under several potential economic events. This would of course necessitate modeling some negative ‘what-if’ scenarios which include rising interest rates, falling home values, One number that will be an asset when stress-testing the HECM portion of in-force insurance in the MMIF is the HPA or Home Price Appreciation rates. The average quarterly HPA from 2011-2019 was 1% or an adjusted average of a four-percent annual home appreciation rate. 2020 home values are certain to push that number significantly higher.

The HECM has numerous challenges when attempting to determine economic viability. It’s valuation and future claim payouts are extremely sensitive to home appreciation/deflation and interest rates. For a better idea of the HECM program’s current economic viability here’s short summary of HUD’s Annual Report to Congress released just this last Friday.

FHA’s Report to Congress on the Financial Status of the Mutual Mortgage Insurance Fund [READ]

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Is There a Looming Inflation Spike?

While economic stimulus measures stopped further economic damage in the early days of the pandemic it certainly comes at a cost. That cost is inflation should there be too many dollars chasing American goods and services. However, almost as if defying economic gravity  U.S. inflation remains below its two-percent target. Certainly, there was a noticeable spike in food prices early this spring…

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The Early Signs of a Housing Crisis?



Are we seeing the early signs of another mortgage crisis or housing bubble?

Perhaps you’ve noticed that housing prices are blowing up despite an uncertain economy and what appears to be a building second wave of COVID-19 infections. At this point, most of us are ready to accept some good news. However, there are some indicators that we are approaching a housing crisis while certainly, we have solid market indicators of improvement. As one Polish poet put it, “the truth usually is in the middle. Most often without a tombstone. Let’s dive in.

First, we will see a spike in evictions- not because landlords are booting out non-paying tenants, but because those property owners cannot pay the mortgage to the bank when they are no longer receiving rent payments. While this does not directly impact senior homeowners it will contribute toward increasing housing inventory which has a direct impact on housing prices. Next, let’s look at the state of the market comparing Black Knight’s July and August Mortgage Monitor reports.

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In its July report Black Knight’s stats who show serious mortgage delinquencies- that’s those who are 90 days past due or longer- jumped 20 percent in July for a total of 1.8 million more delinquencies before the pandemic. However, the overall delinquency rate fell by nearly 9%.

Now, this is where our viewers serving some of our nation’s largest metros will want to pay attention. Here are the ten cities that had the largest increase in delinquencies in July. Florida holds three spots with Miami, Tampa, and Orlando. It’s not surprising to see New York and New Jersey on the list as two of the areas hardest-hit by COVID-19. Cities with the highest delinquencies will see more future foreclosures which naturally increases inventory and lowers prices. The markets with the largest delinquency increases are most likely those where state or local officials have enacted strict shut-down measures shuttering small businesses and spiking unemployment rates. However, keep in mind if we do see a reset in home values it historically has begun in larger metros and then trickles down to smaller communities.

Now on to some positive signs of improvement. The rate of serious delinquencies slowed from July’s 20 percent to only 5 percent growth in August. As the U.S. GDP jumped nearly 33% in the third quarter this year and unemployment rates continue to drop many hope that requests for forbearance plans continue to dwindle after their spike earlier this spring. Outside of historically-low interest rates, the continued lack of housing inventory is sustaining current housing prices. Mortgage delinquencies 100-113% higher than last year as millions found themselves unable to earn an income while sheltering in place, The good news is that many of these individuals are going back to work as evidenced by 41% of those were in a COVID-19 forbearance plan have resumed making their monthly payment.

While these are positive signs of a partial recovery uncertainty remains our biggest challenge. Black Knight Data & Analytics President Ben Graboske explained, “At the current rate of improvement, delinquencies would remain above pre-pandemic levels until March 2022. What’s more, when the first wave of COVID-19-related forbearance plans reach their 12-month expiration period, we would still have a million excess delinquencies.”

In conclusion, what we have is a mixed bag. What could be a looming housing crisis, positive economic indicators, millions resuming their mortgage payments, and of course a red-hot housing market? Our best approach is a stoic one- don’t overindulge in dire predictions, watch key market indicators closely, and consider adjusting your marketing efforts outside larger metros should housing trends turn sour in urban markets.

Resources mentioned in this episode:

BLACK KNIGHT’S JULY 2020 MORTGAGE MONITOR [READ]
BLACK KNIGHT’S AUGUST 2020 MORTGAGE MONITOR [READ]

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Are Forbearances Creating a Housing Bubble?



Will forbearances create another housing bubble?

Mortgage forbearances are being extended. How will home values and borrowers be impacted once they end?

It’s compassionate and pragmatic. Mortgage forbearance allows borrowers to suspend or reduce their monthly payments, however, delinquent payments must be repaid. The good news is homeowners with a federally or GSE-backed mortgage (FHA, VA, USDA, Fannie & Freddie) are protected from a lender initiating foreclosure until December 31st of this year thanks to the CARES Act. FHA-insured Home Equity Conversion Mortgage borrowers are protected under this provision.

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However, there is a less-publicized provision of the Coronavirus Aid Relief & Economic Safety act; a provision that is certain to have a major impact on the housing market and home values.  That provision is the right for the aforementioned homeowners to apply for up to six months and if desired another extension for up to 360 days. No documentation of financial hardship is required to qualify. Basically, that means millions of American homeowners will not be making a payment for up to one year. In essence, our government has attempted to stem a tidal wave of foreclosures and slow damage to our fragile economy delaying the inevitable. The silver lining is home values should remain relatively stable during this temporary calm. That’s a win for reverse mortgage originators who can offer more borrowing power with high home values and low interest rates. Home sales slowed to a crawl in this spring as the first waves of COVID-19 hit our shores. Then the summer months brought record-breaking home sales volumes

as a flood of pent up demand hit the market.

But what happens after mortgage forbearances work their way through the system? Some housing analysts predict 1.9 million or 40% of those in forbearance will end up defaulting. That’s a sobering number but nowhere close to the 3.1 million foreclosure filings seen in the 2008 housing crisis which created a glut of housing inventory driving prices down. A correction in housing values is assured in a cyclical real market but it’s unlikely we’ll see home values plummet immediately. The hope is the air will be released slowly from the housing bubble we find ourselves in today. However, eventually, a toll will be extracted from the housing market for the unprecedented shutdown of our national economy.

Housing prices are marching to the beat of a different drum and seniors are part of the new rhythm which is further constraining housing inventory. “Seniors are scaling down at a far slower rate than in the previous, additional constraining supply. “We were predicting that baby boomers, like past generations at their age, would move into apartments, condos, or to their second homes en masse,” says Ed Pinto- Director of the American Enterprise Institute in a recent Fortune Magazine column. “That isn’t occurring. The main reason they aren’t moving is that their adult children move back in and work from the home they grew up in.”

Two things will mitigate and deflation in housing prices. Housing demand and employment. As more Americans regain employment they are more likely to voluntarily decline further mortgage forbearance and resume making payments. All things considered, a gradual deflation is preferable to a sudden bursting of a housing bubble.

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Should they take their winnings off the table?



Taking their winnings off the table:
Are seniors over-invested in their home?

Let’s say in January 80% of your assets were invested in hotel and entertainment stocks that made you a healthy chunk of change. For sake of argument, let’s say these stocks consistently out-performed your expectations. Then came March and the arrival of the novel coronavirus. If you found yourself holding these positions after the pandemic broke you probably got clobbered in the market.

Much like being over-invested in one or two companies, many are over-invested in their home. That’s a point Hometap Equity Partners CEO & Cofounder Jeffrey Glass made in a last month’s RMD virtual event HEQ- the future of home equity in retirement. If the bulk of a client’s wealth was tied up in one stock a financial professional is likely to strongly recommend diversification. “If that were a stock, and you had 60-90% of your net worth tied up in one stock, no matter how much you love that stock, any financial advisor would tell you you’re over-concentrated, particularly since you’re over-concentrated in an asset that’s illiquid,” While Glass’ was speaking in the context of alternate equity products, his analogy nevertheless rings true.

So what about housing wealth?

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To be frank, home equity is an illusion that exists on paper until it is separated from the home. You can almost still hear the echoes of excited voices twelve years ago boasting of their newfound ‘wealth’ or equity they ‘made’. We all remember how that story ends.

The point is the equity, or value if you prefer’ in the bricks and mortar of a home is neither safe nor guaranteed to be there tomorrow. That leaves older homeowners with two choices to extract equity: sell and ‘right-size’ into a new home at today’s prices or separate a portion of the home’s value and remain in place. The former requires one to uproot themselves and later a tool to extract cash from the roof over their heads. So let’s stop here, right now for just a moment and ask ourselves this question. Will home values continue to rise in 2021? To be honest, we don’t know. There may be indicators of a correction but perhaps we should recall the lyric’s from Blood Sweat & Tears hit ‘Spinning Wheel’ ..” What goes up must come down. Spinning wheel got to go ‘round”. And go ‘round does the housing market go. It’s a cyclical market that ebbs and flows. Many experts see employment as the lynchpin of future real estate values.

All of which leads us to our original question. Should older homeowners be taking some of their winnings or equity off the table? Perhaps. The two hurdles that must be cleared are the fear and misunderstanding surrounding reverse mortgages, and the upfront costs to diversify their ‘equity holdings’.  Before diving into the intricacies of how a HECM works it’s best, to begin with, the broad brush strokes. “Do you plan on living in your home for the foreseeable future?” And the bonus question, “Do you believe home values will continue to go up in the next year or two or go down?”. Even if they’re not reading the Wall Street Journal each week most homeowners are generally aware of the real estate market’s performance and more importantly, they’re old enough to remember earlier housing downturns.

So what are their options? You know them well. Besides selling there’s the favorite recommendation of media ‘experts’- a HELOC. Great, but now they’ve got a monthly payment in addition to their existing mortgage if they have one. Sell? The fact is most prefer to age in place? That leaves us with the question- how would you leverage your home’s values, take some of the risks of a fall in home values off the table, and not be saddled with a payment? Correct me if I’m wrong, but that seems to point in one direction- a reverse mortgage. Even more so a Home Equity Conversion Mortgage with a line of credit.

Equity makes great conversation over coffee but it’s meaningless and most importantly vulnerable until it’s separated from the home.

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4 Ways to Slow HECM FHA Insurance Claims



Four ways to shore up the HECM BEFORE removing it from FHA’s Mutual Mortgage Insurance Fund

For nearly four years there have been repeated calls to remove the Home Equity Conversion Mortgage program. The HECM was placed into FHA’s insurance fund which backs both traditional and reverse loans in 2009. As HECMs originated at record-high values prior to the housing crash terminated or were placed into assignment many began to ask if the program should no longer be commingled with the larger fund. Last year the Trump Administration’s housing finance reform plan echoed this concern. 4 years earlier an Urban Institute study called to remove the HECM citing the program’s volatility in calculating the program’s valuation each year.  The report states “If we assume that half the HECM business is at a fixed rate and that each 1 percent rise or fall in rates causes a 12 percent fall or rise in the value of the loan, that would explain most of the drop in the value of the fund last year and much of the rise in the value of the HECM book of business this year”. With interest rates falling significantly in late 2019 and in 2020 we should expect an improved economic valuation of the HECM.

However, if Congress ultimately approves the move the following issues should first be addressed.

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Improved accounting

Some have argued that Congress has not fully funded the technology needs of an agency that supervises billions of dollars in domestic loans backed by the federal government. FHA’s 2017 Annual Management Report noted the challenge stating, “The loan origination systems of FHA’s Single Family business have an average age of more than 18 years, with the Computerized Homes Underwriting Management System (CHUMS) exceeding 40 years. Similarly, the systems supporting the servicing, default, claims and REO areas have an average age of 14 years.” However the report added, “FHA management considers the existing systems capable of sustaining operation of the FHA insurance programs for the foreseeable future. “ Updated and current technology should be able to identify specific loans and generate aggregate reports on claims paid for property’s in assignment, those which were terminated, foreclosure expenses, and property management costs for REO properties.

Improved servicing

The prompt sale or payoff of a property with a terminated or foreclosed HECM loan will help ensure against avoidable losses and asset depreciation.

When FHA Commissioner Dana Wade called for the removal of the HECM from FHA’s fund NRMLA President Steve Irwin perhaps best expressed the unfinished business that warrants attention in his written remarks to Reverse Mortgage Daily, “I think that before there can be a thorough analysis of such a move, the Department should continue to work to improve the servicing performance of HECMs that have been assigned to HUD. Once the issues on the back end of the HECM lifecycle can be resolved, and the front-end changes that have been implemented over the past several years have been fully considered in the modeling of the program, we should see the fund restored to a positive net worth.”

Although not specifically addressed, one of the concerns by many industry stakeholders are unoccupied HECM properties falling into disrepair, and unauthorized parties occupying the property after the last borrower has died or moved away- both which impact the value of the property and increase the loan balance leading to a likely payout from the fund. Increased staffing and supervision of HUD-appointed servicers for HECMs in assignment would help improve performance and reduce occupancy fraud and property devaluation.

Regional Principal Limit Factors

Just as all real estate markets are local, home appreciation rates vary significantly by state, county and local neighborhoods. Outside of interest rates, the starting home value and principal limit factor or lending ratios has a large part in determining the likelihood of FHA paying out an insurance claim. FHA is not unaware of the regional variations in home values which has led them to call to abandon the present national lending limit in favor of county-by-county maximum claim amounts. However, those with moderately priced homes in poorer counties stand to be disproportionately impacted. Those of you who originated HECM prior to the national lending limit can recall lending caps hundreds of thousands of dollars below the Maximum Claim Amount benefiting homeowners in larger metros. Instead of county lending limits averaging all home sales, PLFs would be assigned to areas based on historical appreciation. Those areas with a record of little or no appreciation would have lower PLFs to reduce the risk of the loan payoff exceeding the home’s value at loan termination.

Leave liabilities

Lastly, any move of the HECM to another fund should leave any existing liabilities from prior loans behind. Otherwise, the program would face the herculean task of digging out from projected valuations which have not yet been fully realized in paid claims.

Change is endemic to the federally-insured reverse mortgage. Today the opportunity to address decades-old dilemmas is before us. What path will be taken remains to be seen.

Additional resources cited:

RMD column: Should FHA Exclude Reverse Mortgages from the MMI Fund?

HECMWorld column: The Tip of the Iceberg: HECM Occupancy Abuses

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The Blindside: LIBOR Move Looms Ahead



The move away from the LIBOR was expected, the sudden deadline for HMBS was not

Last Monday Ginnie Mae, the government bond-insurer, declared the agency will no longer accept any mortgage-backed securities or MBSs attached to the LIBOR index. The policy effective date for HECM loans is January 1st, while traditional mortgage-backed securities restrictions go into effect January 21, 2021.

Our industry’s adoption of the LIBOR index began with d issued October 12, 2007. It permitted FHA to insure HECM loans using either a 1-year LIBOR index for annually adjustable loans and the 10-year swap rate for monthly-adjustable HECMs. By 2008 most lenders had switched to the new index.

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During the transition to a new index trouble was brewing for the LIBOR. Between 2003 and 2013 global regulators advised financial institutions to move away from the index. The troubled LIBOR faced even more scrutiny in 2012 when Barclay’s Bank entered into several criminal settlements which revealed fraud and rate manipulation by colluding banks. The legitimacy of a benchmark lending and financial institutions used across the globe was officially tainted.

Back to last week. While Ginnie Mae’s move away from the LIBOR index was anticipated the announcement of a fast-approaching deadline caught many by surprise as the transition to a new interest rate index had not yet been finalized for the Home Equity Conversion Mortgage.
   

In July 2017 Reverse Mortgage Daily reported on industry plans to work to implement a replacement index before changes take place. In May 2019 Michael Drayne, SVP of the Office of the President of Ginnie Mae discussed the impending index change at the NRMLA Eastern Regional Meeting in New York saying, “The amount of time we have to figure everything out is less reassuring the more you look at how complicated this problem is.” Drayne headed the effort to work with lenders who issue securities in both the traditional and reverse markets. During Reverse Mortgage Daily’s July 2020 Summer Virtual Meeting New View Advisors Michael McCully said our industry stakeholders were working to take “active steps to prepare for the sunset” of the index. He added, “Our principal concern is that we want our industry to adopt the same widely recognized liquid, mainstream global index or set of indices that the rest of the mortgage industry [will use]. We want to be lockstep with the rest of the financial markets, and do not want to end up having a different index than the rest of the financial markets and financial world uses. That’s our overriding objective.”

According to a recent column in TheMReport traditional mortgage lenders moved away from the LIBOR more quickly than their reverse mortgage counterparts. Bonnie Sinnock writes this in the American Bankers Asset Securitization Report. “Due to historically low fixed rates and plans to phase out Libor, traditional ARM securitization at Ginnie has declined notably in the past year. It was $12 million in August, down from $68 million during the same month the previous year. In comparison, newly securitized reverse mortgages continue to run at a rate of $500 million to $600 million per month on average, according to capital markets consultancy New View Advisors.”

What transpired between the ongoing discussions between Ginnie Mae, HUD, the Federal Reserve’s Alternative Reference Rates Committee, and our industry stakeholders leading to a sudden deadline remains to be seen. The good news is our industry has a long established history in using the CMT (Constant Maturity Treasury) rate. In addition, the HECM’s adjustable rate note states if an index is unavailable one can be prescribed by the Secretary of HUD. To date no official rate index has been announced by HUD. In its August 4th letter to the Consumer Financial Protection Bureau NRMLA appealed to use an index that is ultimately adopted by HUD which has similar historical rate fluctuations as the former LIBOR index.

Additional resources cited:

The MReport column on stoppage of LIBOR-based MBS

The Asset Report / American Banker article

NMRLA’s letter to the CFPB on choice of replacement index  [/read]