Reverse Mortgage Jan-Feb 2021

was used for HECMs until 2007. The CMT, published by the Federal Reserve Board, is based on the monthly average yield of a basket of Treasury securities, such as government bonds. Based on how HECMs are securitized and sold on the second- ary market, Ginnie Mae’s decision essentially meant that lenders had to switch to CMT by the end of November 2020, says Steve Irwin, president of NRMLA, which was fighting for more time. Industry leaders see Ginnie Mae’s move as a step back. Use of the CMT index, for example, is likely to narrow the number of investors purchasing bonds backed by HECMs, relegating them to a niche product, Irwin warns. “We think that given the demographic trends in the country and around the world, the HECM marketplace should be part of the mainstream,” Irwin says. Another drawback of the CMT index is that it is based on a market that is less liquid, meaning there are fewer buyers, and more difficulty hedging the securities. This translates into worse capital markets execution and lower profitability for lenders, says Michael McCully, a partner with Naples, FL-based New View Advisors, which ana- lyzes the reverse-mortgage market. “Investors don’t like CMT as much as LIBOR, which is why forward mortgage lenders moved away from CMT three decades ago,” McCully says. Most mortgage markets have already adopted the Secured Overnight Funding Rate, or SOFR. Like LIBOR, SOFR is based on lending between banks, but it is culled from actual rates, not estimates. “SOFR remains the likely long-term solution for HECM,” McCully says. However, the other lending prod- ucts that use LIBOR—such as business loans and adjust- able-rate home mortgages—still have the rest of the year to find a replacement, which has been an arduous task, given the trillions of dollars in transactions that reference the index. For reverse mortgage industry leaders, work continues to try to make SOFR the default for HECMs. The final decision rests with the Federal Housing Administration, says Irwin, who has been focusing on transition issues alongside NRMLA board members LIBOR Issues continued on page 26 Steve Irwin “We think that given the demographic trends in the country and around the world, the HECM marketplace should be part of the mainstream.” — Steve Irwin, NRMLA President REVERSE MORTGAGE / JANUARY-FEBRUARY 2021 25