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New HECM: Old Issues Remain


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The “New” Reverse Mortgage & Legacy Problems

New HECM Product IssuesThe ‘New’ Reverse Mortgage. It’s a timely title considering the slate of recent changes to the HECM program and NRMLA’s Extreme Summit television ads which tout a new reverse mortgage. While one could accurately surmise we have a ‘new’ product we still face some of the same old challenges of years past. However some industry pundits are optimistic as evidenced in recent comments made to industry news leader Reverse Mortgage Daily. Let us examine both the new aspects of the federally insured reverse mortgage and the challenges which remain.

First principal limit factors. HUD’s revised Principal Limit Factor tables increase available proceeds most borrowers in the short term, that is until interest rates rise. Once interest rates begin to modestly increase an actual cut in available proceeds will be realized versus 2013 lending ratios. What is the forecast for the London Inter Bank Offered Rate index upon which HECMs are built?

A May 2014 Barron’s article said…

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  1. HUD has done no favor to my Non-Borrowing Spouse client. At 59 years old, she is forced off title to wait for her husband to die. Then she’s got to get back on title after he dies so the Reverse will stay in place.

    My clients want no part of this legal nighmare even though they trully need, want and would do a Reverse if both husband and wife could stay on title.

    We wonder “what’s the logic” of taking this wife off title as a non-borrowing spouse. Why not make a loan to “both”, keep them on title, and use the lower factors for the spouse under 62?

    • You are 110% correct about both people staying on title. Why should the NBS have to jump through hoops especially after their mate dies? If they both are on title it should remain that way. Why make an emotionally hard time in a persons life more difficult?

      • Tracy,

        I disagree 111% (what is with the percentage?). It seems your view is an emotional one not a financial one. If we must live with Mortgagee Letter 2014-07, then I fully support HUD’s position on this point.

        In fact most Non-Borrowing Spouse situations are probably not best served by a HECM nor should it be. Besides what percentage of all active HECMs have a Non-Borrowing Spouse situation? It is not large.

    • Demas,

      Neither Congress nor HUD ever wanted anyone less than 62 to have the right to proceeds. If Non-Borrowing Spouses who are under 62 are on title, they would have to be borrowers which would allow them rights to loan proceeds.

      If HUD did as you want, what would keep a person under 62 from gaming the system by marrying someone over 62 and divorcing that person immediately following initial funding and as prearranged through a pre-nup get the home with the HECM?

      If you can find a simple solutions to these kinds of problems then suggest them. It is my opinion that HUD should have had Congress rewrite 12 USC 1715z-20(j) so as to reflect its prior position.

  2. Just because someone says something is new does not make it so. This is not Star Trek, the Next Generation. Where is there any evidence that Saver V.2 or V.3 is new?

    At the end of fiscal year 2013, the Standard was terminated and the Saver was modified. Saver v.2 got Principal Limit Factors that were slightly higher than before, its 100% of the principal limit first year disbursements was lowered to 60%, and the upfront MIP was increased and bifurcated into two based on the percentage of the original principal limit expected to be taken in the first year following initial funding.

    So is the HECM after September 29, 2013 but before August 4, 2014, new or just a modification of the old Saver? Certainly the modifications that were made on August 4, 2014 did not make the then existing HECM “NEW.” All they did was to readjust principal limit factors at the current expected interest rates up particularly for older prospects and modified the rules related to non-borrowing spouses. But since the adjective “NEW” did not come from HUD but rather the Extreme Summit, that adjective was added months before the announced changes for August 4, 2.014.

    The value of the change in the Non-Borrowing Spouse policy is blown way out of proportion except as the very false impression that the policy has fixed the problem. First, there never has been a significant number of Non-Borrowing Spouse HECMs ever endorsed AND no one really expects that to change with the August 4, 2014 adopted policy. Second, the adopted policy did nothing to address the Non-Borrowing Spouse HECMs with their related case numbers assigned before August 4, 2014.

    So unless someone can tell me strategically (and realistically) that we are now in the age of Star Trek, the Next Generation, saying something is new does not “make it so.” Beyond that, it seems the kickoff was so poor that NRMLA is not reporting its initial results.

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