MortgageReverse

HECM Saver Risk Appetite: Not everyone has it

When the HECM Saver was rolled out last October, many in the industry were quick to call it the next big thing and in time, it’s a real possibility.

While the Department of Housing and Urban Development (HUD) provides data on applications, the monthly reports don’t break out HECM Saver numbers as of yet, so it’s difficult to figure out how successful the initial roll out has been.

However, new data published on Thursday shows HECM Saver endorsements reached 75 in December, up from 15 in November.  When RMD asked for application data on the HECM Saver, a spokesperson for the agency said “it is still too soon to have any meaningful data” to gauge the interest in the program.

For many lenders, the HECM Saver wasn’t their first priority when it was announced.  Along with the new product, HUD lowered the floor on the HECM Standard and lenders were able to help a big group of borrowers who previously didn’t qualify.  With that group of loans just about closed, lenders tell RMD they’re starting to direct resources towards the HECM Saver and are finding some challenges in terms of pricing.  As of last week, the HECM Saver rate is .25% higher than the HECM Standard according to several rate sheets obtained by RMD.

Asking borrowers to pay more for less money is a difficult proposition and doesn’t make much sense, especially when lenders able to credit most of the upfront costs on the HECM Standard.  However, as rates continue to increase and back end pricing falls, the ability to credit all costs could be going away soon and open the door for the HECM Saver.

“As long as there is a huge price difference, it’s hard for the broker to make this part of their business,” says Bryan Hendershot, CEO of Urban Financial.  “Once pricing stabilizes, you will see the HECM Saver pick up because it will make more sense.”

To help improve the pricing on the product, Knight Capital Grouppurchased Urban Financial last year — is putting additional resources into developing investor interest in the product.  Knight sees the HECM Saver as an opportunity to make reverse mortgages more attractive to a different cohort of borrowers.

“It’s exactly what we need to get the mainstream acceptance we’re looking for,” says David Fontanilla, trader at Knight Capital Group. “However, a key driver of that is to have investors get more interested in the product and more clarity on pricing.”

Fontanilla tells RMD that investors are asking asking about the product but want to know if the prepayment speeds will be similar to the HECM Standard, which history has shown are fairly consistent.  “One camp thinks they will be bridge loans to the standard and the other thinks it will be used more like a traditional HELOC,” he says.

In order to answer that question, Knight is holding a group of HECM Saver loans on its balance sheet to get a better idea on how the loans perform.  Once they have the data, investors can price the product appropriately and hopefully bring rates down.

Cantor Fitzgerald, another Wall Street Trading firm that has a dedicated reverse mortgage desk run by Jeff Traister, Managing Director and Head of Agency/non-Agency Reverse Mortgage Trading, isn’t taking the same approach. “I really like the product and in time, it can be a big part of the overall business,” he says.  But investors are worried about moving too quickly on the HECM Saver, “the fear is that it prepays quickly and you’re going to pay a premium for it.”

Cantor is playing the new product a bit more cautiously than others and has no plans to hold any of the loans on its balance sheet to gather data.  “I just don’t have the risk appetite that others do,” he says.

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