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Wishful Thinking: HECM Costs & Financing LTC


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‘Wishful Thinking’: Lowering HECM Costs & Increased Loan Adoption

reverse mortgage newsIt may be wishful thinking on the part of the Long Term Care Financing Collaborative to think that further reducing HECM costs will increase loan adoption and opportunities to finance long-term care.

Reverse Mortgage Daily Columnist Jason Oliva addressed the assumptions of the Collaborative in his February 24th column which examines the possible role home equity should play when it comes to meeting American’s long-term care needs. Despite the fact that reverse mortgages open a myriad of possibilities for older homeowners by tapping an otherwise illiquid asset, some policy experts feel the existing product may not be adequate to address long-term care costs…

Download a transcript of this episode here.

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  1. Wishful thinking? How about higher “premium pricing”? We already do it to create the YSP’s we enjoy so why not just raise it a little more to cover all the costs? We do have a “no cost” loan already, maybe we need to do it across the board.
    Also, how many hecm title insurance claims have there been in the last 10-20 years? That’s right, practically zero so why do we need all this expensive title insurance? Just order a preliminary title search and decide from there if title insurance is warranted. Our industry could consider self insuring even. Our industry could negotiate with title company escrow departments to base Settlement Fee on UPB rather than Max Claim Amount, like it used to be back in the day.
    We’re not done thinking about this I hope.
    HUD could consider a sliding scale from .5 percent to 2.5 percent MIP.

    • Jim,

      Please present your upfront MIP cost bracket structure. Would there be three, seven, twenty brackets? Would it work like the upfront MIP works now where all of the MCA is charged the same rate or like the maximum origination fee where each bracket is charged its separate rate?

      • simple. expressed as a percentage of UPB to Principal Limit. It can go out 4 decimal points if necessary.
        If 59.99999 percent is .5 percent and the highest available draw is 2.5 percent then everything in between can be expressed as a percentage.
        Make sense?

        • Absolutely not. The MMI Fund will need the same amount of upfront MIP overall.

          For example, if the average UPB at closing when the first year average disbursements above 60% (not 59.9999%) is 80%, the average MCA for these homes is $290K, and the number of HECMs with first year disbursements is 20,000. HUD would be collecting a total of $145 million.

          Now using your method, the average upfront MIP would drop to 1.5% and the total upfront MIP drops to $87 million. So where will the lost $58 million come from?

          To make it work one would have to have a lot of stats and the top end would have to be moved up somewhere in the 3% range so that total annual MIP revenue to HUD on upfront MIP would be approximately the same year by year.

          Now if you are saying you do not care what happens to the MMI Fund, then there is no way to change it, except by law or regulatory change.

          • Cynic, your position seems to be focused on the MMI fund rather than the housing program and you seem to have forgotten that the MMI fund suffered as a direct result of a nearly 40 percent plummet in home values 2009-2012 +- A stable housing value environment should not need such insurance reserves in my opinion and I still contend that the sliding scale could match risk to LTV. You seem to think that making borrowers wait 12 months to suck out the remaining available loan proceeds somehow protects the MMI fund. nonsense….That rather odd “one year delay” does little or nothing to protect the fund or more precisely, the taxpayers so why are you so certain that it is the best and only possible way MIP could be structured??

  2. IMO, “cost” is a secondary consideration. The primary deterrent to usage is “fear”, and that fear is largely based on misinformation.

    • Agreed.

  3. Subsidies?

    Where is the revenue to offset this further drain of the US Treasury?

    Another Democratic Socialist bleeding heart liberal drain of cash. Do they want to reintroduce Standards besides lowering MIP?

  4. The RM of today (post FA) will be less benefit to financing L/T care particularly for those who need it most. The most practical (and unlikely) solution would be to repeal FA and return to the original intent of the product

    • James,

      The law tells us what the original intent of the product is. You will find it at 12 USC 1715z-20(a). HECMs are as structured to meet that intent as at any time in its history.

      How would you suggest that FA be repealed? HUD has no right to do that unless the Secretary believes that it’s in the best financial interests of the program which we know it would not be.

  5. I’ve said it once and I will keep saying it; “this industry is it’s own worst enemy.”

    The long term care industry is one of the largest industries in the nation. The reverse mortgage industry and LTC world should be connected at the hip for the last 20 years!

    And the reason it’s not is not the costs of the loan, it’s not FA, it’s the fact that as an industry we don’t solicit LTC companies.

    This industry is always blaming the product for its failures…

    How many of you are actively soliciting LTC companies? How many of you have marketing materials specifically designed to show consumers how to use a reverse mortgage to pay for LTC? How many of you have “paying for LTC” as a section of your website? How many of you attend LTC trade shows?

    Here we have a national company starting a national conversation on how aging Americans can use a reverse mortgage to pay for quality long term care and all the comments above are weak excuses of why it won’t work…

    It will work….if the industry starts to work!

    • Correctly written the quote should be: “This industry is its own worst enemy.” “It’s” is the contraction of it is. While “its” is the possessive form of it.

      Moving away from grammar, what is your problem with the industry in this regard? If you are right it would seem far easier to prove than H4P is a sleeping giant.

      Dr. Stucki who is no longer part of the industry would back you in your view. Your opinion is still valued by most leaders in the industry. As long as you are not looking at LTCI few in the industry would block building bridges with that industry. So why don’t you lead us in that drive?

      Good luck with that!!!

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