Reverse mortgage lenders are ready for lower interest rates
Like the traditional futures market, the reverse mortgage industry has been operating in a high interest rate environment for some time.
While the news of the Federal Reserve Cutting the benchmark interest rate by 50 basis points (bps) to a range of 4.75% to 5% will have broader economic implications for the government’s ongoing efforts to combat inflation. Benefits are expected for the reverse mortgage industry and for the demographic sector. serves: seniors on a fixed income.
HousingWire‘s Reverse Mortgage Daily (RMD) solicited input from multiple leaders operating in the reverse mortgage industry, and they all look ahead to what the reduction could mean for overall industry volume, as well as their individualized operations in both the housing market as the mortgage market. Equity Conversion Mortgage (HECM) program and their own product offerings.
At market leader Finance of America (FOA) company president Kristen Sieffert said the impact on both the company and the industry will be very clear.
“This week’s 50 basis point Fed cut is welcome news and we hope it will have a positive impact on the broader housing market,” she told RMD. “Taking a step back, our industry is more focused on long-term rates and 10-year Treasury yields have already fallen over the past two months in anticipation of a Fed rate cut.”
Company-specific effects should be notable because of the likely impact on asset values, she said.
“Nonetheless, this transition to a declining interest rate environment is a net positive for Finance of America as our retained assets will become more valuable overall and there will be benefits to consumers that will enhance our loan production,” she said. “Higher LTVs can allow net more new borrowers to qualify and the CMT 10-year rate changes allow borrowers to earn higher yields. This is a useful tailwind for our company.”
Bee Longbridge financialSVP of Wholesale Adrian Prieto told RMD that one of the most notable impacts will be on Platinum, the company’s line of proprietary reverse mortgage products.
“Longbridge, like others in the market, has been eagerly awaiting this week’s rate cut,” Prieto said. “With the Fed’s official announcement, we see a significant opportunity to enhance our proprietary Platinum products and deliver even more value to borrowers.”
The Platinum line also has new product updates following the interest rate cut announcement, Prieto said.
“We are excited to introduce our latest updates: the new Platinum 5.0 A with a reduced rate of 8.49% and the Platinum 5.0 Max with a reduced rate of 8.99%,” said Prieto. “As always, we will remain vigilant to secondary market trends and continue to refine our products for the benefit of our borrowers.”
Bee US senior loans/HighTechLendingCompany President and CEO David Peskin described the impact higher interest rates have had on the demographic before previewing the potential impact on his company and the broader reverse mortgage industry.
“I believe it was necessary to lower interest rates,” Peskin told RMD. “Higher rates over time have a major impact on consumers, especially older homeowners. Higher rates in the ecosystem ultimately cost consumers more money and have a greater impact on older homeowners on fixed incomes. They simply cannot afford such a large interest rate increase in such a short time.”
The negative impact of higher interest rates has also pushed seniors to seek more expensive traditional financing instruments, he explains.
“We’re seeing more and more older homeowners with significant credit card debt because they needed money immediately,” he explains. “When you add this to higher electric bills, homeowners insurance and medical costs, you see homeowners increasingly need access to their money tied up in their homes.”
The impact on the industry, he said, will come down to more eligible borrowers and a potentially smoother process for borrowers who choose to take out a reverse mortgage.
“As the 10-year period decreases and rates decrease, you should see a balance between more homeowners qualifying and rates moving closer to what homeowners think they can stomach,” Peskin explains. “What amazes me is how some homeowners are comfortable paying 22% on credit cards but have to think about paying today’s rates on a reverse mortgage.”
Sean Kirksey, vice president of reverse lending at CMG Home Loansadded that the impact on the reverse mortgage industry and its core demographic should become apparent fairly quickly.
“The FOMC’s recent actions will have a positive impact on the upside market, with a rate cut of 0.50 and indication of two more cuts by the end of the year,” Kirksey said. “This move will provide much-needed access to funds for many of our customers.”
