Reverse Mortgage Jan-Feb 2021

YOUR CUSTOMERS THIS year might need more infor- mation about how the interest rate is being calculated on their reverse mortgage, a calculation that is typically an afterthought. A closely watched and long-running process has been remaking one of the key factors for adjusting the interest rate on a variable-rate HECM, the most common kind of reverse mortgage. While the process is highly technical, there is a clear bottom line: The end result will affect the amount that borrowers stand to receive after their HECMs close, as well as the profits that lenders earn. The factor in question is the underlying rate, or index rate, used to calculate changes in the variable rate. About 90 percent of HECMs are variable-rate loans, which let borrowers take out more of their equity than they would under a fixed rate. Until late last year, HECM rates rose and fell according to an index based on the London Inter- Bank Offered Rate, better known as LIBOR. Published daily, LIBOR represents the average interest rate that major banks expect to pay each other for short-term loans. It lost favor with regulators, however, after a 2012 scan- dal in which banks were discovered to be manipulating LIBOR to their advantage. LIBOR is slated to go away for all lenders at the end of 2021. But, thanks to a surprise move by Ginnie Mae, the index is already on the way out for HECM lenders. Ginnie Mae announced that starting on January 1, it would no longer guarantee securities backed by HECMs tied to LIBOR. The move stemmed from a concern over the reliability of LIBOR going forward. In the place of LIBOR, HMBS issuers have turned to the Constant Maturity Treasury index, or CMT, which LIBOR Issues Explained The New Year Brings Technical Change to Interest Rate Calculations By Joel Berg 24 REVERSE MORTGAGE / JANUARY-FEBRUARY 2021