Margins on adjustable-rate reverse mortgages increased in December for the first time in 12 months, according to Baseline Reverse’s latest Margin Report.

Lender margins for the month averaged 1.98% in December, up from November’s adjusted average of 1.95% and marking the first time margins have reversed the downward trajectory they’ve experienced throughout 2018. (Click chart below to enlarge; image courtesy of Baseline.)

baseline margin

Baseline President Dan Ribler said it’s noteworthy that margins crept up as the HECM Price Index remained mostly unchanged for the month at a strong 1071.31.

“I might expect to see margins creep lower as the HECM index rises,” Ribler said. “Issuers have more profitability to play with, because a higher HECM Index equals higher bond prices. So they have more room to offer lower margin products while maintaining profitability.” 

Ribler said this suggests lenders are not trying to outbid one another by offering the lowest rate possible, as some have suggested.

“Some have been calling for a ‘race to the bottom’ in margins, and after several months of stabilization around the 2% range, I think it’s safe to reject that thesis,” Ribler said, referring to the industry’s reaction to program changes that had lenders scrambling to compete for loans.

But after several months of margin stability and now a slight uptick, the market appears to be regaining its footing.

Ribler said he expects to see more lenders adjust margins to accommodate a borrower’s particular situation in order to make the loan work for them.

“At Baseline, we don’t expect to see average margins change dramatically,” Ribler said. “But we do expect to see margins selected a bit more dynamically in the coming months as loan officers continue to get better at picking the optimal margin for each client-specific need.”