In March 2008 our industry changed direction fundamentally with the announcement of the fixed-rate HECM. Other than a shift in the ARM index from CMT to LIBOR, it was the first material alternative we were given to offer our clients. The product started off slowly as the few lenders that adopted the product early on kept

initial rates well above the PLF floor. This was expected as it is difficult to price a new product with little, or in this case absolutely no, historical

performance data. In mid-2009 the fixed product quickly gained traction. Investors became more comfortable with the compiling performance data and before we knew it, the fixed product constituted 70 percent of

all endorsements, a trend that continues today.

Aside from a few brief moments following Bank of America’s exit, liquidity for the fixed product has grown to a point where the demand exceeds the supply. A similar trend is currently building in the ARM market. In the past couple of months my desk has been flooded by inquiries for paper from various dealers. What’s interesting is that the increasing axe for ARMs began before HUD announced its intent to consolidate the fixed-rate Standard product. Back-end premiums for the prevailing Standard ARM margin have crept up significantly over the past six months with the fixed Saver following suit. The timing couldn’t be better for an industry that is refocusing its efforts back to the ARM market.

I don’t expect demand for HECM paper to slow as we change direction toward ARMs. The forward MBS market is so oversaturated these days that lower volume bond investors are putting much more focus on the niche product. Today’s investors put more attention on products that are within reach. Maintaining the volumes needed to satisfy that demand will become more important in the coming months. Fixed or ARM, smart investors love the HECM story and demand will always be present. The level of demand, on the other hand, will be impacted by the supply originators have to offer the Street. A fundamental shift to the Standard ARM and Saver products will reduce overall supply by volume.

Furthermore, HECM originations have been on the decline, by count, since 2008. Both variables could spark frustration in the market that could impact premiums paid for production. However, as Albert Einstein said, “In the middle of difficulty lies opportunity.” The potential for growth is off the charts, penetration levels are still extraordinarily low, available equity is on the rise, and above all, the demographic of folks turning 62 heading into the next decade is astounding! Pair all of that with a sustainable product that has broader support from Congress, HUD, the industry and the consumer and you have the recipe for the ultimate success. I look forward to being a part of it.