Adios LIBOR

by Shannon HicksMarch 15, 2021March 14, 2021

<span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span></p> <h2 class="p1"><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span>Without audience targeting are Google Ads Dead? Think again…</h2> <p class="p1"><span class="s1">Early this month Google announced new restrictions for targeting specific audiences. The restrictions apply to content related to housing, employment, credit, and those who are disproportionately affected by societal biases. The news of these restrictions created quite a stir among industry brokers and lenders who heavily rely upon targeted Google ad campaigns.<span class="Apple-converted-space"> </span>All which may have you asking if these changes will kill future reverse mortgage advertising on the world’s most popular search engine. In just a moment we’ll hear from our online SEO expert Josh Johnson to find out.<br /> </span></p> <p class="p1"><span><a onclick="read_toggle(1429243136, 'Read More', 'Read Less'); return false;" class="read-link" id="readlink1429243136" style="readlink" href="#">Read More</a></span> <div class="read_div" id="read1429243136" style="display: none;"></p> <p class="p1"><span class="s1">Google’s restrictions are not necessarily novel nor unexpected. It was just over two years ago Facebook faced scrutiny from federal regulators for allowing those offering credit or housing finance to restrict ad audiences by race or religion among other questionable metrics that would violate HUD’s fair housing rules. An investigation by ProPublica broke this news in October 2016. It was nearly two years later in August 2018 that HUD filed a formal complaint against the social media giant for discriminatory advertising practices. Seven months after HUD’s complaint Facebook announced sweeping changes. Both Facebook and later Google, took a blunt approach much to the chagrin of lenders and service providers.</span></p> <p class="p1"><span class="s1">What ad filters are going away? In its official release Google revealed, “credit products or services can no longer be targeted to audiences based on gender, age, parental status, marital status, or ZIP code.” </span></p> <p class="p1"><span class="s1">Is this the end of Google ads for reverse mortgages? To answer that question I reached out to Josh Johnson who heads up Reverse Focus’ Online Dominance SEO program and Google marketing. Here’s his explanation.</span></p> <p class="p1"><span class="s1">Here’s what makes Google unique from other platforms and why reverse mortgage Google ads will continue to reach the intended audience. </span></p> <p class="p1"><span class="s1">To summarize, older homeowners are intentionally seeking out reverse mortgage information on Google which means, yes-your ads will be seen by your target audience, even though you can no longer target specific age groups.<br /> </span></p> <p><img class="wp-image-21372 alignnone" src="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-300x169.jpeg" alt="" width="691" height="389" srcset="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-300x169.jpeg 300w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-768x432.jpeg 768w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-1024x576.jpeg 1024w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-960x540.jpeg 960w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-711x400.jpeg 711w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.004-585x329.jpeg 585w" sizes="(max-width: 691px) 100vw, 691px" /><img class="alignnone wp-image-21373" src="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-1024x576.jpeg" alt="" width="681" height="383" srcset="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-1024x576.jpeg 1024w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-300x169.jpeg 300w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-768x432.jpeg 768w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-960x540.jpeg 960w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-711x400.jpeg 711w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.001-585x329.jpeg 585w" sizes="(max-width: 681px) 100vw, 681px" /></p> <p><img class="alignright size-large wp-image-21374" src="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-1024x576.jpeg" alt="" width="1024" height="576" srcset="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-1024x576.jpeg 1024w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-300x169.jpeg 300w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-768x432.jpeg 768w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-960x540.jpeg 960w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-711x400.jpeg 711w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.002-585x329.jpeg 585w" sizes="(max-width: 1024px) 100vw, 1024px" /> <img class="alignright size-large wp-image-21375" src="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-1024x576.jpeg" alt="" width="1024" height="576" srcset="https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-1024x576.jpeg 1024w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-300x169.jpeg 300w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-768x432.jpeg 768w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-960x540.jpeg 960w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-711x400.jpeg 711w, https://hecmworld.com/reverse-mortgage-news/wp-content/uploads/2020/09/In-post-pix.003-585x329.jpeg 585w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <p class="p1"></div> <p> </p> <p><span data-mce-type="bookmark" style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" class="mce_SELRES_start"></span><br />

The Forbearance ‘Rescue’

Some unexpected GOOD news came just before the weekend. Last Thursday the Federal Housing Administration announced the LIBOR has been officially dropped and replaced with the Single Overnight Financing Rate for adjustable rate Home Equity Conversion Mortgages. The change was formalized in Mortgagee Letter 2021-08. What is the SOFR? Investopedia states the “SOFR is based on transactions in the Treasury repurchase market …Adding the SOFR, “is an influential interest rate that banks use to price U.S. dollar-denominated derivatives and loans”

The road to adopting the SOFR index for HECMs was not a smooth one. Despite years of advance notice of a shift away from the LIBOR, the early deadlines left little time for both lenders and secondary markets to react. Fortunately, those speed bumps are behind us. However before you pop the champagne note the following: First, the EXPECTED RATE FOR both annual & monthly adjustable HECMs

remain tethered to the domestic 10-year Treasury Swap Rate. WHY? Because the SOFR has no equivalent swap rate. A swap rate measures investor’s anticipation of where average interest rates may be in 10 years. Second, the SOFR index is ONLY used for calculating the index to which the lender’s margin is added for ANNUAL ADJUSTABLE HECMs. Third, lenders may choose to continue to use the 10-year CMT in lieu of the SOFR for annual adjustable-rate loans. Fourth, the current note rate must not be below zero percent. Negative rate indexes shall be deemed to be at zero. Again, this is NOT the interest rate floor for HECM principal limit factors- only the adjusting note rate’s base index. Fifth, the SOFR can only be used for loans that will close on or after May 3, 2021.

Let’s briefly examine the 30-day average SOFR index’s performance from February 4th to March 11th of this year. A consistent downward trend can be seen moving from .07% to .031 percent Thursday of last week. However, the annual data is quite revealing. In March 2020 when the coronavirus was finally acknowledged to be a global pandemic the 30-day average Secured Overnight Financing Rate was 1.49 percent. As global markets and banks pushed interest rates down last spring the index fell to .70 percent in April of 2020, bounced up slightly mid-summer, and settled at .03 percent this month. However

Since the interest rate used to determine the expected rate, and therefore the gross principal limit -or funds available before fees and charges, remains tied to the CMT index the question naturally comes to mind which index stands to benefit the borrower who chooses an annually adjustable rate HECM loan. That benefit may be the growth of the loan balance OR the HECM line of credit or available principal limit. From March of last year to today there appears to be a slight advantage in using the SOFR for note rates, at least in the post-pandemic period. Then there’s loan pricing. Originators will want to closely monitor their lender’s rate sheets for the pricing of annual adjustable-rate loans.

In summary, while we’ve bid adios to the LIBOR we remain married to the CMT index when determining the loan proceeds available for all federally-insured reverse mortgages, and only annual adjustable-rate HECM note rates can be attached to the SOFR. As with any market change or disruption, time will be the arbiter of the ultimate outcome

Additional Reading | Sources cited:

Mortgagee Letter 2021-08: PDF, full text

Shannon Hicks

Shannon Hicks - Shannon is a cofounder of Reverse Focus, Inc. He draws from his experience as a reverse mortgage originator and prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he began podcasting and in 2010 with weekly video updates. He has spoken nationally at industry events and is host of the nation’s only weekly podcast for reverse mortgage professionals “Reverse Focus Weekly”. For more information, call 1.800-805-9328 x 3-3 or visit www.ReverseFocus.com .

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2 comments

Guy Schwartz March 15, 2021 at 12:36 pm

I think that you may have a mistake in your presentation look at 3:10 you state the rate went up it was .7 and the number shown is .102, maybe that should have bee 1.02?

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Shannon Hicks March 17, 2021 at 6:05 am

Guy- thank you for catching that. I inverted my numbers for the summer period.

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