Reverse Mortgage Rates Begin to Rise, Lower Proceeds for Borrowers

Over the last week reverse mortgage pricing has taken a dramatic turn for the worse as rates on bonds continue to rise.

“There has been a fairly large bond market selloff in past few days,” said Jeff Traister, reverse mortgage trader at Cantor Fitzgerald. A good benchmark for Ginnie Mae’s HMBS program is the 5-year U.S. Treasury bond, said Traister, which has seen rates go from 2.021% as of Feb. 1 to 2.385% as of Feb. 8.


Source: Yahoo Finance

Due to aggressive pricing from lenders recently, some have been forced to pull back significantly as bond prices began to rise. “There were some lenders who had very aggressive pricing versus where they could execute with the street,” Traister said.

Part of the problem is that the industry is relying on the 5.09% coupon, which allows borrowers to receive the most in proceeds. If lenders started to raise the rate on the HECM fixed product, pricing would likely come back into line, but borrowers would see the amount of proceeds fall.  “We have rates going up, so we’re losing principal limit factors,” said Jeff Lewis, Chairman of Generation Mortgage. “Borrowers will likely never see the deal they had previously in terms of proceeds.”

Earlier rumors indicated that pricing had deteriorated due to Bank of America’s departure from the reverse mortgage business, but our sources say that’s not the case. Several people told RMD the trading desk was very active yesterday and a spokesperson for the Bank confirmed with RMD that it plans to continue trading Ginnie Mae’s HMBS product after the company closes its reverse mortgage division.

That suggests investor interest in the product remains, but rising rates is something the industry needs to get used to.

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