How reverse mortgage lenders are planning for potentially lower rates

With mortgage rates holding up over the past two years, Federal Reserve Chairman Jerome Powell recently indicated at this month’s meeting that there is a reduction in the Federal Funds Rate Federal Open Market Committee (FOMC) is on the table, which would likely result in mortgage rates falling.

Increased interest rates have been part of the reality for the forward and reverse mortgage channels since the waning days of the COVID-19 pandemic. With the possibility of an interest rate cut on the horizon, HousingWire‘s Reverse Mortgage Daily (RMD) reached out to leaders from several major mortgage lenders to get a sense of how they are preparing for such a scenario.

Leaning on education

Shannon Robinson, senior vice president of the reverse mortgage division at New American financing (NAF), said the company remains committed to the prospect of educating borrowers regarding its full range of home equity products. In a more favorable tariff environment, this would be twice as much.

“This commitment includes increasing educational efforts through increased training sessions, improved communications and personal consultations with our borrowers,” Robinson said. “In addition, NAF is expanding its marketing strategies to reach a broader audience and expand our reach. We see a significant opportunity to attract new borrowers to NAF through the joint efforts and partnerships through our sales channels.”

Ensuring that borrowers understand the full implications of home equity products – especially as interest rates change the qualifying equation for some – will be critical, said David Peskin, CEO of HighTechLendingD.B US senior loans.

“There will be some borrowers who can take advantage of a lower rate and access additional yields,” Peskin said. “It is very important for lenders to ensure that the cost of the benefit makes sense to the borrower. I think the greater opportunity comes from those borrowers who really needed the benefits of a reverse mortgage to improve their cash flow during high inflation.

Kristen Sieffert, president of a leading lender Finance of America (FOA), said a potentially new interest rate environment increases reverse mortgage potential for new customers.

“The prospect of rate cuts on the horizon could be a win-win for many homeowners who have been waiting on the sidelines and for the reverse mortgage industry,” Sieffert told RMD. “Importantly, it can help more people qualify through the opportunity to access additional levels of valuable home equity.”

Growing the business

Higher expected interest rates often led to lower loan yields, meaning some potential borrowers in that environment fell short of closing the loan, Peskin said. But staying focused on new customers will be critical, he added.

“With expected 10-year interest rates declining, many of these potential borrowers could likely qualify for a chargeback,” he added. “As an industry, I hope we benefit from lower rates across the board, and look to grow the industry and not just recycle.”

The reverse mortgage industry was boosted during the pandemic years by an explosion in HECM-to-HECM refinancing volume. When that opportunity dried up, lenders tried to quickly return to new business, but volume remained low on a comparative basis.

Bee Longbridge financialChief Revenue and Marketing Officer Melissa Macerato said the company is primarily targeting new borrowers, but will pivot as needed based on the direction of the market.

“Lower interest rates provide opportunities to bring new customers into the reverse mortgage industry and also provide opportunities for existing borrowers to refinance,” Macerato said. “We are continuously adapting our marketing strategies to make consumers aware of the opportunity to get a more attractive offer, including greater returns from lower expected rates on HECMs and therefore higher headline limits.”

As both a reverse mortgage lender and servicer, Longbridge said it can provide information to its customers about potential refinancing options if the terms have a potential upside.

“As the servicer of more than 40,000 reverse mortgage loans, we will notify our customers when refinancing may make sense,” Macerato said. “We also perform this service for our wholesale customers and alert them when opportunities arise to contact a potential buyer or existing borrower.”

The role of the ref

While FOA’s Sieffert acknowledged the opportunity that refinancings have to strengthen operations, he reiterated that a new interest rate environment primarily brings opportunities for market expansion.

“From Finance of America’s perspective, in addition to a potential increase in refinancing volumes to complement our core business, a rate reduction provides an opportunity more broadly to expand the market and introduce new customers to the benefits of a reverse mortgage , which gives us more wind at our backs. “We continue to pursue our long-term goal of mainstreaming the use of home equity in retirement provision,” she said.

Ryan Ogata, the leader in reverse mortgage lending Rateexplained that the interest rate environment affects both the forward and reverse channels equally. There is a cyclical nature of the business as interest rates rise and fall, including a focus on surviving in a high interest rate environment and growth opportunities that come from lower interest rates.

“As a result, good income can be achieved [of refis]but I am not worried that interest rates will fall,” Ogata said. “It will benefit us and eventually the rates will go the other way. That is the cyclicality; that’s the nature of the mortgage business, both front and back.”

Forward integration

One potential difference between the next lower interest rate environment and previous examples is the more consolidated stance of the reverse mortgage industry, which has led to notable reverse expansions among primarily term mortgage companies.

At NAF, Robinson said the reverse distribution allows the entire company to come up with a solution that makes sense for a particular borrower.

“Our reverse mortgage division complements our traditional term loan services and works together to create solutions for our customers – especially those 55 and older who are exploring new home equity options,” Robinson said.

“The reverse mortgage team is well integrated within NAF and is helping educate our forward retail and consumer direct divisions on alternative financial options as their customers approach retirement. This ongoing initiative is seen as an opportunity to introduce new borrowers to the benefits of reverse mortgages.”

In addition to NAF, there are also other primary term lenders such as Rate and Guild Mortgage have expanded their reverse presence over the past two years.