The FNMA has announced that they will no longer offer the purchase of the constant maturity Treasury (CMT-indexed) Home Equity Conversion Mortgage in order to help standardize Reverse Mortgage rates and simplify the variety of products. The move is also intended to build liquidity for the product, and encourage the market to shift toward securitization.
They made their announcement on June 1, 2009, stating that they would discontinue the purchase of the CMT-indexed Home Equity Conversion Mortgage. The change will not become effective until September 1, 2009. Fannie Mae will continue to offer the purchase of monthly adjustable-rate LIBOR-indexes and fixed-rate HECMs. Lenders may still obtain pricing and continue to commit CMT-indexed reverse mortgages until August 31, 2009.
The margins on the Treasury-based CMT have been rising faster over the past year than the LIBOR, thus the CMT recently has not been as popular due to decreased returns and higher fees.
Fannie Mae's recent pricing changes for HECMs had caused lenders to raise margins to a point where the CMT-based loans were becoming obsolete. Based on HECM lending formulas, borrowers have been receiving greater proceeds with London Interbank Offered Rate (LIBOR) indexed loans lately, and more are also locking in low fixed rates.
Currently, the indices available for adjustable-rate Home Equity Conversion Mortgages (HECM) sold to Fannie Mae include the (LIBOR) index and the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year (CMT) index. Reverse Mortgages indexed to CMT are available with monthly and annual interest rate adjustment options. LIBOR-indexes are available only with a monthly interest rate adjustment option.
There is no specific deadline for delivering CMT-indexes to Fannie Mae. Lenders may deliver CMT-indexed HECMs up to the expiration dates of their remaining outstanding CMT-indexed HECM commitments. Delivery fees for seasoned reverse mortgage loans continue to apply as before.
The LIBOR has been a popular alternative to the CMT for lenders because it is an international index rate instead of being a US index.
Interest rates as of June 15, 2009 had the net rate for the HECM LIBOR 325 at 3.57%, and the HECM CMT 325 at 3.74%. The total interest rate is calculated by adding the interest rate index plus a margin set by the lender. For example, a HECM CMT 300 refers to the reverse mortgage program that is using the CMT index and a margin of 300. If the CMT index is 2.10% then the total rate is 2.10% plus the 3.00% margin which equals an interest rate of 5.10%.
The elimination of the CMT is only a further step in the trend of lenders favoring LIBOR products. Predictions indicated that the pricing on CMT products would further diminish, making the need for it insignificant in today’s marketplace. Consumers were already receiving a similar principal limit and a lower margin.
Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). If you would like an information packet or would like to set up an appointment with one of our reverse mortgage specialists, call (866) 683-3690 or complete our online Reverse Mortgage Information.
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