A Sneak Peek of 2018?

Shannon Hicks December 22, 2017 2

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Here’s what to watch for in the new year

Change. That’s the best summary of 2017. What should we be watching for in the new year? From the GOP tax bill to the accounting of the HECM in the MMI fund…

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2 Comments »

  1. The_Cynic December 24, 2017 at 11:55 am - Reply

    It is a shame that more industry leaders do not participate in industry promoted blogs. Industry leadership should never be abdicated in the pursuit of individual company excellence. Without responsibility in the industry as a whole, what does company excellence really amount to? Hiding behind the skirts of NRMLA has done nothing to create a better perception of industry leadership.

    Putting the question of industry leadership aside, let us look at specific aspects of what needs to happen in 2018 to help the industry. While I thought my crystal ball was cracked and filled with used engine oil in the past, many more feel that way about the present. Proclamations of reaching 100,000 endorsements in this or any particular fiscal year are temporarily dead so as to avoid the foolish impression it leaves in industry participant minds when such goals allude the promoters. Also gone is any cry of foul for calling the last five years of stagnation, secular stagnation because it is by most definitions now in fact long-term stagnation. However, with recognition comes responsibility for curing the problem. Merely increasing support for 1) H4Ps, 2) campaigns that reach out of financial advisers and 3) realism in marketing is not sufficient, unless our only answer will be to passively wait it out. We need to find new avenues of leads and referral sources and retool our marketing to milk those channels.

    So what is coming down the pipe for 2018? There is a growing response to the analysis of the vendor just mentioned that will strike at the issue of whether a 1% to 2% difference (if even that) in the default rate is really worth the loss of 15% in new business annually. While the case for diluting the caustic nature of today’s financial assessment cannot be fully developed for a few years, the grounds for developing those conclusions are now taking shape.

    Our basic problems with determining the portfolio values of the HECMs in the MMI Fund have never been addressed. The valuation method seems more guarded than the formula Coca-Cola uses to create its flagship soda. The question is why? So far HUD has made an adequate defense of the program to Congress (but not the American senior population) but there is a growing ground swell to make even more changes to a product that even the industry that provides it cannot properly defend or provide answers to. HUD needs to allow more transparency and better response to the basic issues of how it determines the value of the active HECMs in the MMI Fund and how assignment impacts that value. While it is an industry problem, only HUD can help us answer the recent attacks on the program.

    As to immediate program changes from FHA, for now we need stability. Let’s stop pressing HUD for changes. Instead let us force HUD to take account and also demand accountability from HUD for what it has changed.

    NRMLA has been more helpful to originators this last fiscal year. It is now sponsoring courses that fulfill the national NMLS requirements for licensees. It is also is attempting to create a better environment for its CRMP certificate. If all it can provide those holding the certificate are private meetings at conventions and opportunities to write for its structured magazine, then why have it? NRMLA needs to do more, much more in providing promotion to the general public. That level of promotion needs to be of the caliber to the start to the Extreme Summit.

    Finally, endorsements for the first four to five months of this fiscal year on a monthly basis will be much higher than those of the following seven to eight months. There is a real opportunity for the industry to create enough demand and fulfillment to end for at least one year the downward slope to our endorsement trend and perhaps breakout of the current peak to valley trend. As to breaking out of secular stagnation on even a temporary basis, it seems that is at least a few fiscal years away.

  2. James E. Veale, CPA, MBT December 24, 2017 at 1:55 pm - Reply

    It was quite disappointing to read earlier this week, the final version of the tax bill just passed and discover the loss of interest deductions on home equity indebtedness. For many HECM borrowers, this is the only type of interest they can deduct.

    Unless the interest is paid by year end (12/31/2017) for calendar year taxpayers for whom home equity indebtedness mortgage is a cash basis deduction, this type of interest will be nondeductible until the temporary suspension is either repealed or terminates as scheduled on 12/31/2025.

    The significance of this type of interest to most HECM borrowers is very high. Since most HECMs are Traditional and not all of the proceeds taken are used to pay off existing mortgages or make substantial improvements to the home, all other proceeds used by MOST (but certainly not all), for personal interests, only interest accrued on up to $100,000 of the debt (not including debt classified as acquisition indebtedness) is deductible as home equity mortgage indebtedness interest.

    As a pragmatic issue, fixed rate HECM borrowers should not hastily pay the interest since they CANNOT reborrow the amount paid; however, for an adjustable rate HECM borrower, the amount can be reborrowed as long as the HECM is performing (or active) and the pay down is not being made during a period that the loan payoff is being deferred by a qualified surviving non-borrowing spouse. In order to be considered other than a bookkeeping entry not deductible for tax purposes, whenever possible the pay down on the balance due should be at least a year old before the monies are reborrowed.

    Two other issues are important. First before a servicer can identify any pay downs as interest paid in the calendar year, all accrued FHA MIP unpaid accruals must be paid in full. Also be aware that lenders have no idea how much of the interest you are paying is interest on home equity indebtedness.

    Portions of mortgages paid off at initial closing may be home equity indebtedness which requires a full analysis on the use of proceeds with all prior mortgages paid off with mortgage proceeds to determine if any of the proceeds can be considered to be home equity mortgage indebtedness.

    Borrowers are encouraged to seek the advice of a competent tax adviser who is also reasonably knowledgeable about HECMs before entering into this transaction.

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