Dodd Frank, Downsizing & Padding Loans

Shannon Hicks May 28, 2018 3


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in the Chicago Daily Herald, Jack Guttentag, aka ‘The Mortgage Professor’ asks the provoking question- ‘Have mortgage loan officers become more trustworthy?’in his column. The Federal Reserve’s Truth in Lending requirements may have forced some originators to become more principled in their dealings with borrowers. The regulation outlawed the once common practice of lenders paying their originators more for overcharging a customer, effectively removing the incentive to add points merely to pad one’s wallet. Guttentag rightly points out that reverse mortgages were exempted from the overages rule- an exemption he argues that should be eliminated . Today HECM lenders are not charging extra points, yet each offers varying loan margins on their adjustable rate loans which represent the majority of the HECM market. While the overage rule has squashed one of the more abhorrent practices that infected traditional mortgage lending, it would ultimately prevent HECM lenders from adjusting their pricing to absorb increased regulatory, compliance and marketing costs. Such a regulation would be untenable.

The HECM for Purchase is an outstanding loan in its own right- yet one that has failed to reach its potential- representing only a fraction of overall reverse mortgage loan production. One discussion could help this unique loan gain traction. Downsizing. While many older homeowners may desire to age in place, many should not stay put. Just as the Financial Assessment seeks to ensure borrowers have the means to pay their ongoing property charges, downsizing may also help avoid some of the common pitfalls that could lead to a loan default…

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3 Comments »

  1. The_Cynic May 29, 2018 at 5:05 pm - Reply

    On the single issue of exemption, I find Jack’s position compelling. If we are going to argue that we are no longer in the experimental stage, it is time we step forward and stop pleading for special treatment at almost every turn. I hear Shannon’s argument but in my view, this type of argument is made far too often. I feel we will soon be looked upon by those in Congress as the boy who cried wolf too many times.

    The H4P is losing ground. In a recent comment on Linked In, James Veale concludes based on NAR data that seniors 62 and older accounted for 1.3 million out of 6.1 home purchases for all age groups. That is 22 percent. It seems Baby Boomers led the way with this group with about 64% of those purchases or 827,000 homes purchased.

    Yet last year total H4P endorsements were just 3,047. Thus the penetration rate for all seniors buying homes in 2017 was less than one quarter of a percent at 0.234%. If H4P is all that great at helping senior home buyers, where is that shown in the numbers? In less than 60 days we will celebrate the first decade under HERA. After all of the alleged increased production that House Financial Services Committee members claimed this product would result in, in the whole of the mortgage industry, it is still nothing more than a speck.

    H4P demand is negligible today. Let’s not oversell its importance. It makes us look like we do not know what we are talking about. It is easy to call this less than vigorous, sleepy, inert item a “sleeping giant” because it is obviously less than active or even awake. If endorsements go below 3,000 again what will originators call it then, the ever shrinking violet?

  2. John A. Smaldone June 1, 2018 at 7:23 am - Reply

    On the H4P product, I do agree with my friends The_Cynic and Jim Veale.

    However, Shannon Hicks also makes a very good argument for the H4P program. His points are valid ones and are very good reasons for seniors to down size. This is where the H4P comes into play if marketed properly!

    It is knowing the right approach to take with the real estate broker and their agents. How to set up an effective educational workshop with them. Also what tools needed to light up their imagination.

    This is a great way for realtors and builders to increase their sales and help many seniors in doing do!

    As far as the Dodd-Frank bill, the changes being made are not going to do that much, especially when in comes to the CFPB riding heard over the financial industry.

    As far as what it will do for the institutions over $50 Billion in size, that is great but what about the small $100 to $800 Million size shops or even the $3, 5 and 10 Billion dollar shops, no 3effect on them!

    We have seen close to 1,000 small community banks go under around the country thanks to the Dodd-Frank bill and its autonomous powerful CFPB!

    The regulations imposed on small community banks, credit unions as well as the entire mortgage industry have been enormous and unnecessary!

    I could talk all day on this subject and the damage it has caused. What needs to be done is a complete repeal of the Dodd-Frank bill and start over with a Federal Regulation Control Bill that has what we call, common sense built in it!

    That is my say on that subject for the day my friends!!!!

    John A. Smaldone
    http://www.hanover-financial.com

    • James E. Veale, CPA, MBT June 1, 2018 at 9:33 am - Reply

      All real estate is local. So are many times, the dominant financial practices of seniors.

      We have all heard of HECM originators who believe they are successful with H4P. Yet we do not hear that proportionately across the country. While middle Ohio is doing relatively well with H4P, places like most of California, H4P is more of a hit or miss transaction.

      With all of the talk about how H4P is immune to the problems HECMs generally are subject to, H4P is way down in demand doing proportionately only slightly better than HECMs generally.

      We need to see the most critical time for a H4P. A traditional HECM cannot help a senior increase the size of their home except through additions which most seniors find objectionable.

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