Fees, lending ratios (PLFs), and market growth
The following commentary does not represent the official position of Reverse Focus, Inc.
Since the housing and economic crash nearly 10 years ago our industry has valiantly labored to not only increase reverse mortgage acceptance and loan volume but also adapt to a plethora of new regulations and HECM program reforms. The real test of our industry and the Home Equity Conversion Mortgage is to balance the need to reduce program risks while ensuring the HECM remains accessible to older homeowners.
On one side many originators cite the two biggest challenges to increased acceptance as high upfront costs and reduced principal limit factors or lending ratios. On the other side, HUD faces the task of taking measured steps to reduce the likelihood of HECM loans resulting in an insurance claim or payout. Recent reports showing increased ‘losses’ in the program have resulted in significant HECM cutbacks in recent years. The tension lies between increasing accessibility to the HECM while successfully managing the risks to the FHA insurance fund which has backed the program since 2009.
Earlier this month the Brookings Institution (a Washington D.C. think tank) advocated for a ‘reformed’ reverse mortgage. Their proposed reform? Offer reduced FHA insurance premiums for low-risk borrowers utilizing fewer funds- in essence, a return of the HECM Saver. The study as covered in Reverse Mortgage Daily elicited a slew of comments-many which took exception to the study’s conclusions. Perhaps overlooked was the Brookings Institution’s outright support of the HECM program.
Beyond the debate or reintroducing a Saver product lies the question- what will increase acceptance of the federally-insured reverse mortgage?