Stratmor: Reverse fears among forward lenders signal lack of market understanding

by Francis Monfort26 Feb 2018

With forward lending volumes and margins projected to decline, lenders should look into adding reverse mortgages to their mix, according to mortgage industry advisory firm Stratmor Group.

While some lenders stay out of the reverse mortgage market, Stratmor Senior Partner Jim Cameron said their reasons for not offering such mortgages reflect a lack of understanding of the current reverse environment.

“It’s time for lenders to toss that old cassette tape deck and break out a new media player,” Cameron sad. “Concerns over reputational risk, profitability, and product complexity have been mitigated through regulation and improved practices. Reverse is a mortgage product that can benefit senior borrowers, and lenders should look to crack the code on leveraging both the forward and reverse markets.”

Cameron noted that reverse mortgages have been offered for more than 30 years. He added that the program continues to be viable and adequately priced for risk given recent changes by the Department of Housing and Urban Development to the Home Equity Conversion Mortgage program.

“Still, the reverse lending market is a fraction of the forward market,” Cameron said. “With the MBA predicting industry production — constrained by a lack of supply — to decline to $1.6 trillion in 2018, and average rates to increase to 5.6% by 2020, the reverse mortgage product offers an opportunity to lenders for reaching the 62-and-older borrower demographic.”

Cameron said lenders entering the reverse market should focus on combining functions where appropriate given the cost and margin pressures seen on both traditional forward and reverse lending.


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