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It was a “Dear John” letter of sorts…the kind where one party explains why they are walking away from the relationship.. In this case it’s FHA walking away from its short-lived relationship with the Standard Fixed Rate HECM. Reading Mortgagee Letter 2013-1 one can conclude FHA’s deliberate attempt to shift loan volumes to the Saver.
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5 Comments
Most of you in our industry aren’t going to have a clue about what I’m saying, but here goes anyway. …….Don’t know why everyone keeps whining about losing this program, the lenders did it to themselves. Don’t give me the “_ _”(edited by Admin) about LO’s not being compensated more at the 5.06. Everyone know that there are plenty of “perks” still left in the industry for those of us who have been around and are smart enough to play by the rules on highly profitable loans. Many lenders (not everybody falls into this category) shoved borrowers into the “standard” fixed, by selling “FIXED” rates to uneducated seniors often due to premiums. Simply put, GREED. Brokers and hybrid correspondents were probably more at fault than “true” correspondent lenders. As hard as the government try’s to control the lenders, in most cases they’re simply not smart enough. So, realizing this, they killed it. Granted, things (self controls) are much better than it’s been in the past, but the industry still needs to improve to prohibit future government intervention that we are seeing at the current levels.
Who represented the industry’s side of this issue? Seems as though the political bosses won yet again. Why they took away the H4P fied rate from the generation that had lost lots of value in their homes, due to the NINAs’ and other adjustable products that extinguished equity much faster than the market would support. Thus, they are highly reluctant to enter into another adjustable program, which as interest rates rise will also deplete equity at a much higheer level than a fixed rate.
Kind of reminds me of an ld saying, the Titanic was built and designed by professionals and the Ark was built by man.
I think that your comment that Titanic was built by God and man we should find out the needs of the public and what we as the Loan Originators can supply. It’s the days of “Well “.
If the fixed rate Standard was bad for the MMI Fund (and it was), it is bad for the industry as well. No lender can afford the risk of offering a fixed rate mortgage and not have it be a closed end mortgage. This is why even the fixed rate portion of a hybrid HECM will have to be closed end. (If you do not understand why the last two sentences are true, it would be a good idea to speak with your supervisor.)
It seems there will be disagreement on the use of the fixed rate Standard for some time to come. For now, it seems the fixed rate Standard had its day but in a matter of weeks will be placed to rest.
Now to the myth on the detriment of high interest rates for the adjustable rate products to the MMI Fund.
What risk is rising interest rates to HUD? Assignment mitigates HUD’s exposure to rising interest rates since it FHA both guarantees the loan and is the actual owner of both notes following assignment. This is nothing more than the proverbial left hand owing the right hand. Who would be the party to reimburse once assignment is complete if NOT FHA itself?
Unfortunately too many argue higher interest rates without speaking about assignment. When originators make such ridiculous arguments, this shows the level of knowledge about the very product originators are providing. It also shows how much is being said without thinking through what it is that is being proposed.
If anything HUD gains revenues with higher interest rates!! Why because the balance due grows more quickly and on those loans that are barely underwater or not underwater at all, this means higher MIP accruals each month than when interest rates are lower!!!
There are three areas which can become significant sources of loss to HUD in assignment: 1) cash draws by borrowers who will be underwater at termination, 2) intra-governmental interest costs on carrying the HECMs during assignment, and 3) defaults on property charges which occur following assignment.
So why are fixed rate HECMs so detrimental to the MMI Fund? That is simple. Very few adjustable rate HECMs end up in assignment while it seems the majority of fixed rate HECMs will; carrying costs in assignment can become enormous if a fixed rate HECM is active for many years. The underlying reason is that even at termination most adjustable rate HECM borrowers have taken about 50% of what was available to them while with fixed rate Standards, there is no choice but to take 100% of all that was available.