Overnight Financing Rate (SOFR). It differs from LIBOR in several key areas. It’s a daily rate, as opposed to LIBOR’s varying duration terms. It relies purely on transaction data, and it does not incorporate a credit-risk component because it is based on U.S. Treasury securities, the global default risk-free standard. The differences mean that SOFR is not a plug-andplay alternative for LIBOR in existing contracts. “The change not only affects new annually and monthly adjusted HECMs that are being originated, but more importantly, it affects existing HECMs, where borrowers originated their loans long ago,” Schiffman says. Under new HUD guidance through Mortgagee Letter 2023-09, existing annually and monthly adjusted HECMs must transition to the 12-month or one-month Chicago Mercantile Exchange Term SOFR, respectively. Interest rates are determined by the index in effect 30 days before the interest rate change date, plus the spread provided in the note. Multiple changes overlay new adjustable-rate HECMs, originated beginning July 1, 2023: • The index value can never be below zero; • A monthly adjustable rate may only be offered if an annual adjustable rate is also offered; • Lifetime caps cannot exceed ten percent above the initial note rate; and • New model HECM adjustable notes are mandatory for case numbers assigned after July 1, 2023. “These changes will have a material impact, which you will need to explain to new borrowers,” Schiffman says. “Perhaps even more importantly, this transition will have a profound impact on your existing HECM borrower who may not simply be calling their servicer with questions but will likely be contacting their originators— namely many of you—with questions and concerns.” For several years, NRMLA has been working with FHA on “formulating the path forward” through the transition, Shahin adds. “NRMLA has been actively involved with guiding suggestions on how to deal with it for quite a while.” Easing Liquidity By design, any loan securitized through Ginnie Mae must be purchased out of the pool when the loan-to-value (LTV) ratio reaches 98 percent of the maximum claim amount. The purchase requires capital, and it goes on the buyer’s balance sheet as it’s assigned to HUD. But high interest rates are forcing LTVs to 98 percent more quickly than models had predicted, putting stress on balance sheets and consuming the holders’ capital. Ginnie Mae and HUD are aware of the issues, and “conversations continue to identify areas where there may be some relief,” says NRMLA President Steve Irwin. HUD has streamlined the process and documentation requirements for assigning cases purchased from the Ginnie Mae pool for faster and more efficient payment of insurance claims, Irwin says. Another possible solution would allow mortgagees to securitize draws against loans more than once a month. The dialogue and solutions made possible through the Reverse Mortgage Stabilization Act of 2013 provide timely relief for NRMLA members, Irwin says. They help businesses stay viable and available for potential Heading to NRMLA? Email Jon McCue to meet! REVERSE MORTGAGE DATA. OUR ANALYTICAL TOOLS. YOUR INCREASED SUCCESS. RMINSIGHT.NET Being Vigilant continued on page 26 REVERSE MORTGAGE / SEPTEMBER–OCTOBER 2023 25
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