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Navigating Rapid HECM Changes

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The pace of change to the Home Equity Conversion Mortgage (HECM or reverse mortgage) program has rapidly accelerated in recent years. First we had several principal limit factor reductions, the introduction and subsequent removal of the HECM Saver program, the elimination of the Standard HECM products, two-tiered FHA insurance premiums and first year distribution limts. Recently HUD enacted a new policy for Non Borrowing Spouses (NBS) with new PLF tables which goes into effect this August 4th which should be shortly followed by a finalized Financial Assessment measuring a borrower’s financial capacity. How does one keep pace?

reverse mortgage newsFirst FHA can and will make policy changes quickly as they see fit via mortgagee letter due to their new authority in the Reverse Mortgage Stabilization Act of 2013. The lengthly rule-making process no longer applies allowing for swift and sudden program modifications. Such rapid tweaks to the program can be beneficial in addressing issues as they arise but also create frustration and confusion for both lenders and the consumer alike. One could say the only constant for the HECM program is change itself.

Policy changes may present unique opportunities. For instance, while imperfect, the Non-Borrowing Spouse policy may allow for many to revisit previous loan prospects who walked away due to their concern of the younger spouse being able to remain in the home after the older borrower passes away. It also will garner positive press amongst consumer advocacy groups and financial professionals. Similarily the Financial Assessment while increasing origination efforts and underwriting will be received similarly. Perhaps our industry tagline should read “this is not your grandparent’s reverse mortgage”.

Not suprisingly many of these changes have not been openly embraced by many reverse mortgage professionals. Collectively we want strong consumer protections but not at the expense of further narrowing our potential market with borrowers having to pass through the filter of numerous regulations and underwriting standards. Unfortunately further restrictions seem to arrive during a down market where we can ill afford further reductions in volume. What remains is how we will both prepare and respond in the coming months as these new policies take effect.

How do you anticipate preparing or even leveraging your business in light of these recent changes? What advantages and disadvantages do you anticipate? Please share your ideas in the comment section below.

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6 Comments

  1. Why are we still discussing the acceptance of change? There are industries where change is a daily matter such as income tax. There are others where change is rare such as the funeral industry.

    Reverse mortgages are part of the financial products industry where change is not infrequent. A few years ago when change just began heating up, some advised that things would quickly get back to where they used to be. We now know how reasonably accurate those predictions were.

    Preparing for change by now should be routine. What we should be getting better at is finding new opportunities and quickly capitalizing on them. Our biggest problem is with our prospects dealing with change. Our focus should be bringing them up to speed rather than dwelling on complaints.

    We also have those who seem to believe that HUD with the enactment of the Reverse Mortgage Stabilization Act of 2013 can change policy at will but the new law only gives the HUD Secretary the right to make change when “in the Secretary’s discretion”, it is needed “to improve the fiscal safety and soundness of the program authorized by this section” [12 USC 1715z-20(h)(3)].

    We all know financial assessment is coming, so its arrival should be absorbed in a matter of a couple of months but the choice is ours; either we can be overwhelmed by change or quickly absorb it.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

    • Mr. Veale:
      Once again you have hit the nail on the head.

      Stay on course – just veer a bit every now and then. It’s how life works.

  2. Back in 2005 when I came into the industry, expected interest rates were not as stable. Here in California the counties we most often originated in, all had different lending limits. We frequently used Home Keepers since we could not use HECMs for a period of a few years for the coops in a city composed of senior housing. We also were pursuing Cash Accounts and within a few years about 10 different proprietary reverse mortgages.

    The differences between the products were not insignificant and change was relatively frequent yet complaining was far less frequent. Why?

    First, we could choose what we kept up with. Most originators focused solely on HECMs. Many originators did not want to deal with the mass affluent. The HECM focused originators seemed happy when lending limit changes were made because they were generally increasing the limits which on many HECM transactions meant higher origination fees since there was no 1% origination fee rate and there was no cap,

    Those of us who were reaching out to the mass affluent, having a variety of products meant we had an array of differences in products which financially savvy consumers appreciated.

    Since change in those days meant higher commissions and appeal to a broader consumer base, there were much fewer complaints about change.

  3. when dose Financial assessment start, March ?? its not in your letter.

    • Pudge,

      The assessment goes into effect for FHA case numbers issued on or after April 27th, 2015. All the best.


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