Record-low LIBOR rates and competitive margins erase most of 2017 PLF reductions
Dan Hultquist of Finance of America Reverse returns for another exclusive interview; this time discussing how a record low-interest-rate environment do erase most of the impact of the October 2017 PLF reduction and much more.
Dan is correct. A 150 margin should be about a 3.06 % Expected Rate this week which gives 52.4% to 75% PLF, exactly the same range as PLF %’s with the old 5.06% Expected Rate.
About 15 years ago, the broker I was working for scoffed when it was suggested that the weekly announced HECM initial interest rate could be higher than the weekly announced expected interest rate. Back then the only indices that could be used were the Constant Maturity Treasury rate indices. So I began monitoring that index. Within six months, we had months where the CMT index was lower than the monthly CMT. For about six months, most weeks experienced this level of nontechnical inversion.
The 10 year CMT was selected because when the index was selected, most influential observers believed that the majority of HECMs would terminate within 10 years of origination. Based on data posted by HUD over the last three decades, this opinion has proven to be true.
During this calendar and despite what reporters have told us, we have yet to experience a technical inversion of interest rates. For an inversion to occur, the ten year federal rate must drop significantly below the 2 year rate. So far this difference has not occurred. Two of the major cable news services have jumped on this indicator as a clear sign that we are heading into recession this year. Then several showed a slide that only a small percentage of economists believe recession will occur this year and about a third believe it will happen no later than 12/31/2020. The largest percentage believe it will happen in 2021 and finally 26% believe it will happen AFTER 2021. Of course the politically biased reporters spoke as if recession were almost in effect right now.
Right the important thing that interest conditions are favorable to HECM origination.
Dan is amazing….Thanks Shannon for all you for our industry and beyond! What great content
Loren Riddick, CRMP
National Direction of Reverse Lending Thrive Mortgage
Shannon…please add “do” for proper grammar thx man for all you do