for the federal funds rate was the first in three years, and the Fed plans to continue raising rates for the remainder of 2022. The immediate impact on reverse mortgage originators has been the drop in proceeds from HECMs, known as principal limits. In some cases, borrowers have seen the drop in real time. The limits are at one level when they first begin discussing a HECM but fall by the time they are ready to apply, says Ellen Skaggs, CRMP, national reverse mortgage sales manager for New American Funding. “That can be a shock for them, when they think the loan proceeds are one thing and they discover they are going to receive less,” Skaggs says. In some cases, clients may find that the proceeds are not enough to pay off their mortgage, she adds. While some clients may defer taking out a HECM, other clients are committed to moving ahead and are still in a position to pay off their mortgages, regardless of interest rates, she says. To sweeten the deal, though, lenders may want to offer concessions, such as a credit or fee discount to help make up the difference in expected and actual proceeds. Timing Clients also have to factor in where home values may end up if they do decide to wait, Skaggs says. Interest rates may be lower in a year, but home values may be, too. “People have to make that decision. So, it’s part of the conversation,” she adds. FAR has seen clients taking out HECMs in anticipation of higher rates, Norman says. The decline in proceeds may turn away some borrowers, he notes. However, demand overall has been rising as others seek to lock in rates before they float higher. “We’re seeing back-to-back some of the best months we’ve ever seen as a company,” he says. Demand for HECMs will still come from seniors feeling the effects of inflation on fixed incomes and retirement savings, says Ed Robinson, president and chief operating officer of American Advisors Group (AAG). Consumer prices rose 8.5 percent in March, the fastest pace since 1981, according to the U.S. Department of Labor. “This is what I believe could be a real motivator for more consumers to consider taking action in the short term to obtain a HECM,” he says. On the other hand, higher rates are dimming interest in HECM-to-HECM refinancings. The business had been brisk as borrowers sought to take advantage of falling rates. But with rates rising, refinancing is less attractive, lenders say. Those offices that do just HECM-to-HECMs will have a hard time, Skaggs says, noting the decline in principal limits means there is less benefit to borrowers from a refinancing. One exception would be people who took out HECMs more than a decade ago and have seen home values rise dramatically in the years since. Purchases HECMs for Purchase, meanwhile, could benefit from a rising-rate environment, lenders say. Seniors are continuing to move, often to be closer to family. A HECM for Purchase allows them to buy a house without taking on a mortgage. And retirees on fixed incomes may qualify more easily for a HECM for Purchase than a forward mortgage. “Given that seniors have collective equity of more than $10 trillion, I can see how guiding prospective homebuyers to utilize equity in tandem with a HECM for Purchase could actually expand the opportunity to purchase a new home,” Robinson says. “Whether it’s downsizing, moving to a property to better fit a lifestyle, being a snowbird, moving closer to family or any number of reasons, utilizing a HECM for Purchase could be as beneficial, if not more, than utilizing equity alone and/or in conjunction with a forward mortgage.” The challenges include ensuring that buyers who are new to the HECM for Purchase understand the nuances of the product, Robinson adds. “In the forward mortgage market, it’s effectively an expectation to close and fund a purchase mortgage in less than 30 days. Generally, it takes longer than 30 days to close and fund a HECM for Purchase, so building good relationships Adjusting to Higher Interest Rates continued on page 26 Ellen Skaggs Ed Robinson REVERSE MORTGAGE / JULY-AUGUST 2022 25
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