Reverse Mortgage Jan-Feb 2021

McCully and Joe DeMarkey and Tim Isgro of Reverse Mortgage Funding. They are part of a larger group known as the Alternative Reference Rates Committee, created by the Federal Reserve Board and the New York Fed to help smooth the transition away from LIBOR. Even though a shift from CMT to SOFR could be disruptive because it would be yet another change, Irwin says, it would lead to a more robust secondary market for HECMs over the long term. Impact On Borrowers Among borrowers, the ongoing index changes are likely to spur questions about the impact. The questions are not lim- ited to reverse mortgages, nor are they unwarranted. If lend- ers and regulators are not careful, a new index could deliver a windfall to lenders or a bonus to borrowers depending on whether or how the new index diverges from the old. “SOFR is not a one-for-one replacement for LIBOR,” says John Button, CEO of technology provider ReverseVision, which is based in San Diego. “For new loans, you can manage that. But for existing loans, that’s a bit of a problem.” Borrowers could end up paying more under a new index than they would have under LIBOR—or they could end up paying less. The rate for borrowers is basically the index plus a fixed number referred to as the margin. If the margin is two, the borrower’s rate is two points higher than the index rate. For example, an index rate of 1.5 percent would translate into a rate of 3.5 percent for the borrower—and an expected amount of profit for the lender. The end goal of the index transition is what stakehold- ers call minimizing value transfer. NRMLA would like regulators to offer consumers an explanation of the index changes and why they are happen- ing, Irwin says. It was regulators, after all, that prompted the change. “We hope that senior borrowers have access to inde- pendent, third-party information that clearly in plain lan- guage explains the situation,” Irwin says. “We don’t need to create confusion for the senior borrower.” Button adds: “I think it’s going to be important not only what that message is but who’s delivering that mes- sage, and that’s why I think it’s important that HUD play a role in communicating with the consumer.” LIBOR Issues continued from page 25 John Button 26 REVERSE MORTGAGE / JANUARY-FEBRUARY 2021