Archive for July, 2009

CMT Index Based Reverse Mortgage to Be Eliminated as of 9/1/09

Posted on July 23, 2009. Filed under: 1 |

News of the termination of the CMT (Constant Maturity Index) product for Reverse Mortgage came on June 1, 2009 from the GSE (Government Subsidized Entity) , Fannie Mae. Fannie Mae, one of the main investors of Reverse Mortgages, announced they would discontinue purchasing the CMT Home Equity Conversion Mortgage. One of the reasons give was to simplify the Reverse Mortgage offered and attract more investors in the program.

Michael A. Quinn stated, “Fannie Mae’s decision to discontinue to purchase CMT-indexed HECM’s is intended to help standardize and simplify HECM product offerings, build liquidity for the product, and encourage a market shift toward securitization”.

The CMT will be replaced by the LIBOR product (London Interbank Offered Rate), an index which has been used for Reverse Mortgages for a few years. A rise in the CMT index has been occuring which means lower proceeds for senior borrowers.

Because the LIBOR index gives Fannie Mae the chance to sell the product, the marketable LIBOR was a good opportunity to get rid of the CMT for Reverse Mortgage loans. The change becomes effective on August 31, 2009.

Fixed rate indexes have become attractive to borrowers since the fixed rate of late seems to offer a good amount of cash out for borrowers. Note that with Fixed rates, however, all proceeds must be taken at closing. Obtaining a fixed rate reverse mortgage is not always the best choice for borrowers since the interest on the full balance begins on day one. Because all the proceeds must be taken at closing, interest is accruing on a larger sum of money. Consult an advisor or an attorney to discuss your options before proceeding with a fixed product, and consider the LIBOR adjustable rate if you are looking for more options such as a monthly check or line of credit.