A Legitimate Need?

Shannon Hicks February 25, 2013 9

 

Will borrowers have to prove a need for lump sums with remaining products?

A Legitimate Need? That may be what borrowers need to show when requesting a draw from their reverse mortgage. Yes, the suspension of the standard fixed rate HECM will dramatically reduce those choosing to take a lump sum withdrawal from their federally-insured reverse mortgage, but what about the rest? In a conference call hosted by FHA last week the agency hinted at additional changes later this year. If the Federal Housing Administration does not receive Congressional authority to make the changes they will proceed with a rule making process…

9 Comments »

  1. Warren Strycker February 25, 2013 at 10:16 am - Reply

    Seems to me the first question gets ahead of the issue as this whole subject does. I tell people an RM is an entitlement and as long as the government doesn’t lose money on the deal, they have a right to it. So, how do we now get into “verfication”. It’s their right. They should not have to make up a story to verify it. Their equity belongs to them. The loan is a bonefide loan. The issue is the government guarantee and those who use their right should have to bear the cost to the government, but not the embarrassment of creating reasons for their right. Scuse me Shannon, but… Is the RM no longer a citizen right? When did that happen?

  2. CLIFF RIDDLE February 25, 2013 at 10:55 am - Reply

    MATH IS CHANGING,,2+2 NO LONGER ADDS UP TO 4 WHEN YOU TRY TO MAKE UP FOR FHA SHORTAGES THEY KEEP ADDING OR SUBTRACTING FIGURES
    THAT SHOULD NOT EFFECT 2+2 ,,,,, WHY CAN’T THEY KEEP IT SIMPLE ANYMORE
    AND QUIT TRYING TO FIX SOMETHING THAT IS 95% CORRECT ,,WHAT OTHER GOVERMENT PROGRAM IS 95% ?????IF THEY KEEP THIS UP THEY WILL HAVE A BIG SHORTAGE OF LOAN ORIGINATORS,,

    • James E. Veale, CPA, MBT March 1, 2013 at 9:42 am - Reply

      Mr. Riddle,

      FHA has not maintained its statutory 2% capital reserve for the MMI Fund. The White House has been concerned about the issue since spring 2009. Congress has been holding hearings about it for a few years.

      FHA has acted responsibly and now it is time to shore up a very problematic program, the HECM. The HECM has been expanded into areas which were not encompassed in its original mission and that is allowing seniors to age in place. While that is a great use of a HECM, it is just that not an original goal of creating the program.

      None of us who work in this industry as originators originate on behalf of FHA. We are originators for our employers which offer a loan which when requirements are met is insurable by FHA as a HECM.

      As a mortgage insurance company, FHA can create new requirements for future insurance any time it wants. Or it can simply dropping insurance for any coverage for any existing loan types as it will on April 1 for fixed rate Standards.

      While change is frustrating for some, it is a far more common occurrence in other industries. For example, in the area of income tax, the IRS issues thousands of opinions, rulings, procedures, changes to its general publications. That does not include new laws, court decisions, and even Treasury regulations. Then there are the states with their own income tax laws and the changes multiply. For those of us who have worked at international companies there are foreign income tax rules with there own peculiarities and changes.

      While this is a frustrating time for those who want a controllable business model, the industry is getting tougher to work in. Listening to the Senate hearing yesterday, Congress is looking at even more change and so are FHA advocates.

      Again for clarity, I am writing as a CPA and in this case, an individual originator and not as a spokesperson for any lender including Security One Lending or any of its affiliates.

  3. tom mastromatto February 27, 2013 at 6:04 am - Reply

    When are we going to hear the rest of the problem from FHA unrelated to HECM program..the forward FHA problem ..the 84% of the problem

  4. Bill Danner February 27, 2013 at 9:38 am - Reply

    The folks in charge are not capable of solving issues associated with this segment of the inustry and our lobbying arm is not strong enough to thwart their moves. Trying to legislate folks into paying their taxes and insurance is like pushing a chain. We must do a better job, all around, originators, counselors, and everyone else that comes in contact with that borrower, that they will be able to afford what they are being priviledged to get. This essentially should be the final impactful financial decision they have to make.
    Don’t let a few misinformed or improperly counseled folks ruin a program that is so very much needed by the Senior community.

  5. Jonathan Messeloff February 27, 2013 at 9:42 am - Reply

    Borrowers, seniors of not, who re-finance their homes with cash-out do not have to explain why they want the money. Why should seniors who want a Reverse Mortgage have to do it? The more important aspect is the income that the seniors will have going forward. That will have a much greater impact on the advisability of getting a Reverse Mortgage.

  6. Jonathan Messeloff February 27, 2013 at 9:43 am - Reply

    Borrowers, seniors or not, who re-finance their homes with cash-out do not have to explain why they want the money. Why should seniors who want a Reverse Mortgage have to do it? The more important aspect is the income that the seniors will have going forward. That will have a much greater impact on the advisability of getting a Reverse Mortgage.

  7. Jonathan Messeloff February 27, 2013 at 9:44 am - Reply

    Borrowers, seniors or others, who re-finance their homes with cash-out do not have to explain why they want the money. Why should seniors who want a Reverse Mortgage have to do it? The more important aspect is the income that the seniors will have going forward. That will have a much greater impact on the advisability of getting a Reverse Mortgage.

  8. James E. Veale, CPA, MBT March 1, 2013 at 9:17 am - Reply

    Mr. Strycker,

    Lenders are free to offer any kind of reverse mortgage they want. The government will only insure those reverse mortgages which comply with HECM standards and requirements.

    If FHA decides to increase or decrease their underwriting insurance standards, they have that right. What FHA cannot do is undo existing coverage unless contingent requirements are not met.

    By law the HECM program permits HECMs on coops yet FHA has decided it will not insure reverse mortgages on coops. So how are HECMs an entitlement or a right? That seems to be more your explanation than fact.

    A lender can ignore any verification requirements of FHA they want but if they do, the reverse mortgage may not qualify as a HECM, exposing the lender to loss.

    Cash from a loan is not equity. For example, if the loan balance exceeds the value of the home, there is no equity but a HECM borrower has the right to take cash to the extent it is available despite the fact the borrower has no mathematical equity in the home.

    A HECM is a mortgage. FHA permits lenders to offer loans where the amount of the proceeds is measured by the value of the home, the age of the borrower, and the applicable expected interest. Equity plays no part. The owner then signs a loan agreement where the home serves as the collateral. So some of these equity arguments do not seem to be germane other than a sales technique to help explain the loan.

    For clarity I am writing as a CPA not as a spokesperson for any lender including Security One or any of its affiliates.

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