Lender margins on reverse mortgages rebounds from 9-month slump

by Candyd Mendoza15 Apr 2019

Margins on adjustable-rate reverse mortgages have continued to climb after a nine-month plunge that started last March, suggesting that the industry might be starting to recover, according to Baseline Reverse’s new margin report.

According to a report from HousingWire, the data from the report revealed that February’s margins averaged 2.02%.  It also showed that margins rose from 1.95% to 1.97% in December then moved up to 2.03% in January.

While several factors likely caused the increase in lender margins, Baseline President Dan Ribler told HousingWire that the industry is not experiencing a race to the bottom as some had guessed. Many thought that lenders would be forced to slash profits to compete for loans after the October 2017 program changes, he said.

The HECM Index stayed relatively flat over the previous month, Ribler said.

“Just looking at these two items in isolation tells me lenders might be making a little bit more profit margin month over month,” Ribler said. “As ARM margins rise, the gain on sale generally increases. Since the HECM Index has remained flat – meaning market pricing hasn’t worsened materially – this suggests total execution has increased slightly. Obviously, there are other factors to consider, but these two factors combining are certainly a positive sign for lenders.

“It’s steady as she goes. I’m hearing from a few lenders that things are ‘starting to improve’ while others are ‘cautiously optimistic,’” he said. “In general, there’s a more positive tone in the space these days than there was a few months ago.”