The Federal Reserve Chair, Jerome Powell, recently hinted at a possible cut in the federal funds rate at the upcoming September meeting of the Federal Open Market Committee (FOMC). This potential rate cut could lead to a decrease in mortgage rates.
Many experts believe that a rate cut would offer immediate advantages to the reverse mortgage industry, especially for Home Equity Conversion Mortgages (HECMs). However, the industry is also transitioning from a period of high refinancing activity due to low rates during the pandemic, where HECM-to-HECM refinances surged, accounting for nearly half of industry volume in 2021 and 2022.
To gain further insights into the industry dynamics leading up to the FOMC meeting, HousingWire‘s Reverse Mortgage Daily (RMD) interviewed President John Lunde of Reverse Market Insight (RMI).
Editor’s note: This interview has been condensed for clarity and conciseness.
Chris Clow/RMD: A few years ago, you emphasized the need for the industry to focus on new customers when rates were expected to rise. How do you view the potential for another refinance boom given the recent rate environment?
John Lunde: I don’t foresee a boom on the horizon due to the relatively short period of high rates in the past two years. The volume of loans originated during this time has been limited. While there may be a slight uptick, especially on the forward side, a significant boom seems unlikely.
Clow: Without a refi boom in sight, what immediate impact do you anticipate from a rate cut?
Lunde: A rate reduction would attract new customers by making it easier to showcase value. This shift towards new borrowers remains crucial, with any refinancing seen as a bonus. Additionally, forward lenders may become more distracted by opportunities in their sector, potentially benefiting reverse mortgage professionals.
Clow: Could increased focus on forward lending impact recent efforts by forward lenders entering the reverse space?
Lunde: There may be a reduction in attention from forward lenders and real estate agents crucial for industry growth. While this poses a challenge, lower rates could offset the impact. It is essential to leverage the work done in the past two years to attract new customers and sustain volume.
Clow: With industry consolidation and changes, is the sector better positioned to manage increased business, or is there untapped potential due to fewer active players?
Lunde: The industry remains underserved, with opportunities for growth through collaboration with existing forward lenders. Surviving reverse lenders could benefit from increased volume, even if the overall loan numbers remain steady. The focus should be on expanding distribution channels rather than competition.
Clow: How can originators navigate changing dynamics amidst economic uncertainties and policy changes?
Lunde: Focus on aspects within your control to drive success, regardless of external factors like interest rates or political noise. Stay committed to business activities that enhance your performance and adapt to market conditions. Embrace the positive effects of rate changes and remain focused on achievable goals.
Clow: Can a rate cut at this stage impact the industry’s performance for the rest of the year?
Lunde: A rate cut could influence future performance by adjusting expectations and market sentiments. While the immediate impact may be limited, it sets the stage for potential growth in the coming year. It’s more about positioning for future success rather than short-term gains.
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