Trend Watching – Fixed Rate HECMs
May 13, 2009
We periodically receive questions about various HECM rate types and how prevalent they are in the marketplace. One of the specific questions we’ve seen resurrected lately has to do with fixed rate HECMs and just how much market share they have in the reverse mortgage industry.
The short answer is that it’s a surprisingly small amount for anyone expecting a forward mortgage type figure of 50%+, but there are some interesting trends happening lately that make us wonder if this won’t become a more important part of the reverse business, at least in the short run.
The chart above displays rate type trends back to 2007, showing fixed rate as bright red, annual adjustables as the dark blue and monthly adjustables as light blue. Before anyone gets too excited, notice that we’ve chopped off the top 90% of this graph (all monthly adjustables) to show what’s happening in the fixed/annual share of the world.
But there are still a few important points to notice here:
- Fixed rate HECM volumes are down from their peak early last year just after introduction, but recently have regained some additional volume
- Annual adjustables are starting to gain as the margin gap shrinks between annuals and monthlies
So what might be driving these changes? Well, for one thing we’ve been hearing several clients and readers mention that with current pricing from Metlife, situations are becoming increasingly common where a HECM fixed can offer comparable or improved cash availability to a borrower with a comparable current interest rate, plus comparable economics for the broker. After reviewing a current rate sheet this seems reasonable, and if it lasts would seem to be a very favorable situation for the industry in aligning originator and borrower interests if both expect rising interest rates.
And as we checked deeper, the numbers support the story as well. The chart makes it pretty obvious that brokers are paying attention to their rate sheets, and Metlife’s aggressive fixed rate pricing is picking up steam.
We’re not sure how they’re able to offer their rates, but as long as they do, I’d imagine we might see fixed rate volumes heading back up again. And if other wholesalers join the party, the industry just might open up a whole new class of customers who have historically viewed adjustable rates on reverse mortgages as a deal breaker.
Met lifes fixed rate does seem to be a good option at this time but only if the borrower needs all funds at closing to pay off a mortgage etc.
I’d say that fixed-rate HECM volume is low for two reasons: First; mosty borrowers do not take all of teh proceeds at closing. Second; the unfortunate reality is that some RM LO’s push teh Adjustable rate products because there is more premium.
One of the real problems is “Have you ever experienced
how long it takes MetLife to close a loan”? My gosh, unbelievably long. I have a client right now who just had to have a fixed rate FHA HECM. He has threatened to cancel
many times because of the lengthy process (Not all MetLife’s
fault: Counseling delay, Appraisal delay, and so on). I don’t know how many underwriters MetLife has but based upon my loan, MetLife must really be shorthanded. I know other
Loan Originators who refuse to send business to MetLife because of their reputation for taking forever to complete a loan.
Good comments. We probably should have mentioned the issue about full draw requirements, but it’s interesting to see that volume is increasing despite that limitation. I’d be curious to hear if originators believe their fixed rate clients would have taken a variable rate product if fixed was not available.
It’s unfortunate but true that sometimes loan officers are solely motivated by fee potential, but from the rate sheet we saw the economics looked very comparable to a variable product.
As to processing times and issues, we’re not going to weigh in either way on that as we’ve seen many companies in the industry struggle at various times with increasing volumes. Metlife’s increasing volume seems to suggest that they’re at least handling enough to grow their business, but at this time we don’t have sufficient data to compare their turn times with other lenders for a meaningful analysis.
Mr. Lunde,
Great job!! This is an excellent example of what your company does best – take a pile of information and provide meaningful breakdowns. Kudos.
While it is hard, staying out of the fray of speculation is the best policy for a company that wants to build a reputation of providing relevant and unbiased information.
1) The origination fee is the same as the adjustable that I’ve been using; thought this fee was regulated.
2) The Fixed Rate is great for clients who don’t have quite enough equity and can’t make ends meet these days. They’re taking money out of other assets to pay off their mortgage to avoid mounting financial problems. The MetLife product saves them up to $10K.
3) We’re new to MetLife, so no experience on the processing time yet.
Thanks Mr. Veale. We see our core competency in making business sense of large amounts of data, so glad that we’re on the same page there.
We do occasionally put out alternative perspectives, scenarios or interpretations to get some thoughts started. I guess in some cases that ventures far enough to be considered speculation, but that is a very small part of what we’re doing and always from a foundation of data analysis.
Regardless, we hope to be part of the solution for the historical lack of data/information in this industry and are always open to additional comments and criticism as we work together toward that goal.