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Surprise: What Loan are Borrowers Choosing?


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Borrowers overwhelmingly choosing Standard Adjustable. Why?
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Reverse News

Recent Devolpments In The Reverse Mortgage Industry

Noted Business author and speaker Peter Drucker said “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” As we all know FHA recently eliminated the Standard Fixed rate reverse mortgage in hopes to reduce risk to the mutual mortgage insurance fund. But has this change had the desired effect? Let’s examine a few recent developments. While no data is published from HUD on what percentage of HECMs are fixed rate standard versus adjustable some trends are beginning to reveal themselves…


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  1. Not one borrower that I have ever spoken with has considered the HECM Saver a viable choice, despite explanations as to its merits. While they may not have an immediate need for all the cash allowed in the Standard, they project a future need or desire for those funds and dismiss the Saver’s lower yield.

    Prior to 3/31/2013, ALL my loans were Fixed Standard, not only due to existing mortgages, but because borrowers wanted to be able to manage the cash proceeds themselves. Ironically, since the Standard was eliminated, every prospect or borrower I have dealt with has NOT wanted all the cash they can get and are choosing the Adjustable Standard’s line of credit or monthly payment options, perhaps in addition to a small initial draw or payoff of a relatively low current mortgage balance.

    I was not overly concerned about borrower resistance to adjustable rates as I believed that would be easily overcome with an explanation regarding lack of monthly payments as well as the opportunity for increased growth of a line of credit. Indeed, even selecting the highest initial interest rate is seen as an advantage due to that potential increase in the LOC when the borrowers plan to remain in the home until their deaths. I am seeing less concern for equity retention recently, so again the adjustable rate has not thus far been a major deterrent.

    All that said, it has been less than two full months of activity and certainly not enough time for me to draw meaningful conclusions. But I am amazed that the sudden shift in the wants of my borrowers has coincided so very well with the elimination of the Fixed Standard! Now I just hope that trend continues! If that were true across a high percentage of the board, perhaps we would not need the anticipated reductions in principal limits or subjective rulings on justification for some borrowers taking it all.

  2. My clients, altho they dislike the adjustable rate, are taking more cash available over less cash available. These folks have little or no mortgage. They are house rich and cash poor so the need for cash is greater in thier minds than the risk of the adj rate HECM
    I have seen an uptick in demand for the HECM since March of this year. I tried to tell them about the Saver but as soon as I mentioned “less cash”, they moved on. Cash at closing was the hot button.

  3. I believe it was a fallacy by FHA/HUD in thinking that eliminating the FR product would reduce “delinquency”. On the contrary the majority of Seniors will go for the max draw to repay mortgage debt primarily and satisfy other financial needs or supplement income. On the other hand the Adjustable Rate when it starts to move upwards as it surely will will consume equity over time at at more rapid rate and those who were prone to delinquency will be even worse off in the end.

  4. Overwhelming the borrowers want as much cash as they an get no matter the loan product

  5. I believe more borrowers will go with the HECM Standard ARM vs the Saver because it does give them more money. This is why I tried to suggest before April 1 that the Standard Fixed be allowed to remain in place and be used for H4P loans only – but obviously I wasn’t heard.

  6. This thread proves that to break through to the larger senior market, new blood is needed in the HECM space. Retraining is both inefficient and ineffective. That is true whether we are talking about HECMs for Purchase or Savers.

    So far all the talk about understanding how Savers work and how to appeal to the larger senior community is mostly talk and little production. The same holds even more true with HECMs for Purchase.

    We are now making up our own arguments about why HUD was wrong to take away the fixed rate HECM. The fact is by offering the product for even six months of this fiscal year HUD is now predicting the negative net position of the HECM portion or the MMI Fund will almost double to well over $5 billion.

    Forget about all of the nonsense talk about delinquencies. They are what they are. They have little to no impact on the negative value of the net position of the MMI Fund. However, this WAS one of those products which was not only bad for the insurer but also for the consumer. While it was a win for lenders, it was a lose, lose for everyone else.

  7. I have always sold a high percentage of HECM Adjustable loans. My customers would always come in wanting the HECM Fixed, but I would explain in detail the LOC option and in most cases, where we were not paying off a large mortgage balance, my customers took the LOC option with some cash at close for immediate needs. They always liked knowing there was cash available for future expenses.
    I have also sold a number of Adjustable Savers along the way. All of those loans were referred to me by Financial Planners or CPA’s. In two of those cases it was determined by the customer that it was going to be a shorter term loan because of plans already in place for a change in their future residence. They knew they would be selling their home in 3-4 years, so the HECM Saver was used as a life line for them to get to that point in the near future and was chosen for its lower cost.
    I am not at all surprised by these new findings. The need is there now for retired consumers to have the most amount of cash available. No one wants to outlive their money, and with increased longevity I see consumers overwhelmingly choosing the largest loan option in nearly every situation in the future. As has frequently been said to me by my customers in the past, “If we are going to do this thing, let’s do it all the way”.

  8. At the NRMLA Regional Meeting in NYC, I was one of the dissenters who said I did not believe we would see a 50/50 split of Fixed Saver to Standard ARM product after the Fixed Standard was put into mothballs. I don’t know what the thinking was of those who had that belief, but those of us who have been in this industry for a while know the one contant that we’ve heard from borrowers when choosing to do a HECM. That one contant by the overwhelming majority of clients was “what is the most money I can get?” It wasn’t about rate, fees, or other components of the product. Yes, those were important but in a secondary way.

    This would also have been known by the CFPB if they had only spent a little of their time interviewing actual borrowers before making a report on what borrowers think.

    • Brien,

      Forget about the CFPB. If our industry does not understand its own customer’s needs, why would the CFPB even care? Never expect the newest government bureau to know or FULLY explore one of its smallest oversight obligations in the first 24 months of its operations. There is far greater latitude for the CFPB than for NRMLA attendees.

      In my experience, the vast majority of NRMLA attendees are not newbies.

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