In a recent statement, Federal Reserve Chair Jerome Powell hinted at the possibility of a 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, particularly benefiting the reverse mortgage industry, including Home Equity Conversion Mortgages (HECMs).
Experts and industry professionals believe that a rate cut would offer immediate advantages to the reverse mortgage sector. However, the industry is also transitioning from a period of high refinance activity due to the low-rate environment during the pandemic. This shift raises questions about the potential for another refinance boom, especially considering the efforts made in recent years to attract new borrowers.
To gain insights into the industry’s current dynamics ahead of the FOMC meeting, Reverse Mortgage Daily (RMD) from HousingWire spoke with John Lunde, President 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 shift focus towards new customers amidst rising rates. How do you view the potential for another refinance boom given the recent rate environment?
Considering the ease with which lenders pursued refinance opportunities, do you anticipate a new refinance boom or a different trend with the current rate outlook?
John Lunde: The potential for a refinance boom seems unlikely due to the limited loan volume in the past two years amid high rates. The focus on attracting new borrowers remains crucial, and any refinance activity should be seen as supplementary rather than a primary growth driver.
With lower rates, attracting new customers becomes easier, reinforcing the importance of targeting new borrowers. Meanwhile, the forward mortgage sector may become more competitive, diverting attention from reverse mortgage activities.
Clow: With a potential refinance boom unlikely, what immediate effects do you foresee from a rate cut?
Lunde: A rate reduction would attract new customers and enhance the value proposition for reverse mortgages. Despite distractions in the forward mortgage market, the focus should remain on serving new borrowers effectively.
Clow: Could increased competition from forward lenders impact the recent progress in reverse mortgage activities?
Lunde: Forward lenders’ shifting focus may reduce attention on reverse mortgages, hindering potential growth opportunities. However, lower rates can offset this challenge and drive overall industry growth.
Clow: Has industry consolidation positioned the sector to handle increased business, or is there untapped potential due to fewer active players?
Lunde: The industry’s focus should be on engaging existing forward lenders as distribution partners to drive growth. While consolidation has streamlined operations, there is still room for expansion by involving more industry participants to reach a broader audience.
Clow: How should originators adapt to changing dynamics amid economic uncertainties and election-related noise?
Lunde: Originators should focus on factors within their control to drive success, irrespective of external influences like interest rates or policy changes. Staying committed to business activities that enhance performance is key to navigating through market fluctuations.
Clow: Can a rate cut at this stage impact the industry’s performance for the remainder of 2024?
Lunde: A rate cut can influence market expectations and product adoption, potentially setting the stage for growth in the coming year. While the immediate impact may be limited, the long-term effects could shape industry trends for 2024 and beyond.
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