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.