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An Identity Crisis for the HECM?


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reverse mortgage newsThe HECMs identity, purpose, and true intent

Anyway you slice it, the reverse mortgage industry is struggling to get back on a positive trajectory. Not surprising considering the glut of regulatory changes and product revisions we have absorbed in recent years. The silver lining is the immense market potential that lies ahead. The uncertainty lies in the question, what will the HECM program look like in the future?

Beyond regulations, product changes and product restriction we face another quandary, a crisis of identity and purpose. Much of the HECM’s identity crisis can be attributed to our traditional needs-based borrower of yesteryear…

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  1. Most educated seniors will actually avoid any relationship with AARP. They are a for-profit, pro-banking industry farce masquerading as a protector of senior’s interests.
    HECMs eat into prospective banking loans and potential credit card profitability and offer a hedge against the excessive interest rates and collection tactics they perpetuate. This attack on an equitable feature that affords a senior the same access to inflationary asset growth as does a savings account in a lending institution, is considered as competitive to banking growth.
    The world witnessed the greed of the banking industry leading to its financial collapse, so no one can deny that the they still foster that same “greed” element in their drive to control all monetary decisions and financial opportunities. Political wannabees who seek to share in the financial industry’s windfalls are always more that grateful to accept their excessive monetary handouts in the way of donations and speaking fees, becoming the pawns they need to perpetuate their control over the public sector. jf

    • If once again the growing line of credit as it is currently constructed begins resulting in significant actuarial losses to the HECM portion of MMI Fund, I will gladly agree to its elimination; however, that would only mean that the HECM fund should revert to its original structure.

      This would mean the immediate reinstatement of the Principal Limit formula where the Principal Limit equals the sum of : 1) the balance due, 2) the available line of credit, 3) the grand total of all amortized balances of set asides. This would require that all growth rates would be one-twelfth of the sum of the annual MIP ongoing rate plus the nominal expected interest rate. This means not only increasing but also decreasing lines of credit. While that will be hard to explain to seniors, it would mean far less risk to the MMI Fund by avoiding “out of control growth” in the line of credit.

  2. First off, Shannon pointed out many great concern’s we all need to be aware of!

    Financial Assessment implemented in April of 2015 on a whole was a good thing. The change was needed because to many senior homeowners who were able to get a HECM should not of been approved for one in the first place.

    This has shown to be a fact, what we as an industry did in many cases was only to create a Band Aid temporary fix for the inevitable, foreclosure!

    In my opinion and it seems to be some what that of Shannon’s is that HUD, the Federal Government, FHA and yes, the CFPB has done is ruin a good thing by over burden the ruling with proposed changes after changes!

    You notice I threw a lot of agencies including the Federal Government in the Pot, rightfully so!!

    I feel a great deal of the slow down is because of the proposed and implemented changes as well as fears as what is next to come.

    FA as a whole I feel has been accepted and embraced for what was implemented in April of 2015, it is what the Federal Government and its agencies as well as committees have done since then that out this industry and our seniors besides themselves!

    The big question is how do we stop this damage control against the needed HECM for our seniors. The Federal Government does not understand what they do nor do they care! How do we start making them accountable for their actions and the destruction they are causing to our product and our seniors!

    As you can see, I am infuriated, NRMLA, AARP or some strong organization need to organize a major fight against what is taking place. Some organization with the guts needs to start a strong and I mean strong petition drive to get the government to remove all the changes and proposed changes and just leave FA the way it was implemented back in April of 2015, period!

    John A. Smaldone

    • John,

      I will start off by saying that we do agree.

      Financial Assessment has reduced on its own our endorsement count by 15%. The industry needs it but in a very, very different form that eliminates defaults for failure to pay property charges and not by discouraging seniors from even attempting approval. Even the OSU study provided by the BCCRR has effectively concluded this.

      We do not need to strike out at every government agency and the federal government itself. There is no problem with attacking the CFPB for what it has done wrong in changing reverse mortgages; my problem is in finding where that change is.

      I have heard you rant that HUD changed things the way the CFPB wanted it to but if that is the case, then HUD should be condemned for making the change, not the CFPB.

      What is wrong is that the industry claims that FHA lowered the upfront costs of HECMs but that is a farce when looking at Savers and then the 2014 HECM as FHA calls it. Even savvy seniors seem aware of that.

      You need to carefully point out the changes that need to be made to HECMs and then bring them up to originators, lenders, NRMLA, and even the policy makers at HUD. You may want to spin your wheels with AARP but that is a personal decision.

      I wish you the best.

  3. John, I totally agree with you! The Government DOES NOT care about the seniors needs! Most government officials are only concerned with what affects them, and do not think on the poverty level If our seniors have to sell their homes or be foreclosed on where are they going to live? Rents are so high, they cannot afford to pay them, it takes months for seniors to cut through the red tape to get senior housing assistance and help. Pretty sad indeed!!

    • Who is Joyce Hsnson? Perhaps you were so mad, you misspelled your last name. There have been times… (oops, The_Cynic has no last name).

      The first HECM was endorsed in fiscal 1990. It was not until fiscal 2002 that the annual volume for HECMs exceeded 10,000 endorsements for the first time ever. Up until then, it was impossible to talk about any significant positive impact of HECMs on seniors.

      You may be right that we need more government support for seniors but social program increases are up to Congress and currently there is absolutely no appetite for such change.

      HECMs are not part of any social program. They are nonrecourse mortgages insured by FHA that have specially designed features for borrowers to be able to use their homes as collateral on the mortgage for the purpose of obtaining cash flow as needed by the senior throughout retirement. Their features should change as the economic environment demands.

      While dreamers talk about competitive products where are these competitive products? The only real competitor, Fannie Mae, stopped offering their reverse mortgages, Home Keepers on 9/30/2008 (after the passage of HERA).

  4. From MY,perspective,the HECM program has had it’s ups and downs. Partially due to the fact the SOME lo’s are looking or using this another sales. I truly think this approach has put a bad taste in our citizens over the age of 62. Verbiage is critical, for the delivery process of this PROGRAM, and you must treat it as such. These citizen have had plenty of time to do thete due diligence tesearching the product. BUT ,some are continuing to listen to there freiends, family members ,ect. As LO’s it is our responsibility. To teach ,train,and give them the correct knowledge,to asdist them in thos decision. Presenting the program as a very lucrative financial tool, and utilized correctly. Their money they are sitting on can make them money or put them on a path to be debt free. So many times this program starts as a zebra and by the time it gets to your potential client ,whom teally could utilize this
    It becomes an elephant. You need to take the stand you are not selling this, you are teaching them how yo utilize thete already exsisting financies. To grow them in the future years.

    • Donald,

      Your comment is so poorly written, it is hard to understand your points and yet at times there is almost enough content to get the the gist of what you are attempting to convey.

      For example, “as LO’s it is our responsibility. To teach ,train,and give them the correct knowledge,to asdist them in thos decision. Presenting the program as a very lucrative financial tool, and utilized correctly. Their money they are sitting on can make them money or put them on a path to be debt free.’ (sic)

      The first two sentences in the quotation seem comprehensible but then you state that the program should be presented “as a very lucrative financial tool, and utilized correctly.”

      What program are you discussing? The HECM program is an insurance program created by HUD for lenders who want to provide a reverse mortgage that is government insured. So the actual program is the insurance program. Yet you suddenly begin discussing ” a very lucrative financial tool.”

      The financial tool is the mortgage but as to whom it is lucrative is the lender and its originators. It is not lucrative to the borrower. According to Google, lucrative means: “producing a great deal of profit.” Yet a mortgage produces no profit to a homeowner. It produces profit to every participant at closing but the borrower.

      So if you are “teaching” that this mortgage is a means to profit for borrowers, we cannot agree; it is not. It is a means to increased cash flow by taking on more debt which is not a lucrative transaction.

      To spend time on the rest of your comment is not “lucrative” for me or you.

  5. Shannon,

    Your graph is very odd. It shows 21 months of activity using green bars and then 21 other month using a blue line with blue circular markers.

    The first 21 months are January 1, 2015 through September 30, 2016. All the legend tells us is that the blue line represents the prior year. So what prior year is that since years are not composed of 21 months? So is the green bar for the month of January 1, 2015 being compared to the blue marker of January 1, 2014 or some other month?

    The reason for the question is that if my conclusion is correct the blue line markers after December 2014 are again representing the months of January 2015 through September 2015. It is an odd graph to say the least. It would be better if the months covered by the blue line markers were stated using numbers on the line itself, such as 1/14.


  6. 3% MI increase topic
    Based on past performance of the loan.

    Why not wait and do a sampling of the current loans that operate under the new guide lines.. After all they were put into place to correct the problem.
    The new guide line should eliminate past performance.

    Or is their intent to make the product so dysfunctional that the lenders pull out and the government walks away saying” we tried.”
    (Sorry for the sarcasm)

    • Robert,

      What do you mean by the following: “3% MI increase topic Based on past performance of the loan.”

      What 3% MI (by which I believe you mean the FHA ongoing MIP rate)? Please let us know what this is and how it potentially impacts our businesses.

  7. The upfront rate on Savers was not 0.1%. It was 0.01%. At 0.1% and a maximum claim amount of $500,000, the upfront MIP would have been $500 but instead the rate was 0.01% making the upfront MIP only $50.

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