Surging Foreclosures & HECMs


What do surging foreclosures mean for future HECM applicants?

Unemployment, foreclosures, and interest rates ultimately impact reverse mortgage lending. The point of today’s episode is not to dwell on the negative but to take an honest hard look at economic factors that can no longer be ignored amid a housing market and economy that frankly feel surreal. Presently, home prices remain frozen near their record highs despite mortgage rates doubling in two short years with a few notable exceptions. Also, the U.S. GPD continues to show robust economic output despite our national debt reaching unsustainable levels. What gives and what are the potential impacts on reverse mortgage lending?

A frozen housing market & foreclosures


First, let’s examine the housing market. Home sales have plummeted to record lows- what many refer to as a frozen housing market. The primary culprits are low inventory, high mortgage rates, and stubbornly high home prices that have pushed most would-be homebuyers to the sidelines. 


However, the housing market could thaw quickly should foreclosures continue to surge. Redfin reports foreclosures have steadily risen as interest rates increased. And a new report from ATTOM reveals an 8% increase in foreclosure filings. In addition, REO numbers in several states have reached levels seen since the Great Financial Crisis and Housing Crash of 2008. The annual increase in foreclosure filings in February jumped 51% in South Carolina, 50% in Missouri, 46% in Pennsylvania, and 7% in Texas. Despite this surge in foreclosures, 28 states saw a reduction in foreclosure activity. That would indicate the regional impact of employment or underemployment. 


With that in mind let’s look at the highest foreclosure rates for larger cities with a population over 200,000 residents. In February there were 1,367 foreclosure starts in New York City, 998 in Houston, 808 in Los Angeles, 792 in Chicago, and 777 in Miami. Keep in mind the long-term ripple effect that continues from the expiration of foreclosure moratoriums and evictions. 


The annual uptick in U.S. foreclosure activity hints at shifting dynamics within the housing market,” said Rob Barber, CEO at ATTOM, in a press release about the report. “These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices”…which really doesn’t tell us anything. Underlying those shifting dynamics are the unemployment rate, interest rates, and economic conditions. More importantly, increased foreclosures whether locally or nationwide increase inventory and push down home values. This would impact potential reverse mortgage borrowers in affected areas. 

Unemployment and the national debt


Bloomberg Economics ran a million forecast simulations on the US debt outlook. 88% of them show borrowing on an unsustainable path.  Bloomberg reports the Congressional Budget Office’s latest projections show US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. 


This should come as no surprise with spendthrift lawmakers in both parties in Washington DC spending away the future of coming generations. The trick is we enjoy the benefits of deficit spending in the short term and Congress knows this as it keeps them in good standing with voters. However, as debt levels continue to rise creditors and those buying U.S. treasuries will begin demanding higher returns to offset the risk. Reduced demand for U.S. Treasuries would push interest rates up even further, slow the economy, and lessen the value of the dollar. All of these factors will contribute to further downward pressure on home values. Should the government continue to print money to mitigate the impacts of a burgeoning debt then inflation would accelerate once again.


The bottom line is home prices are likely to soften in several metropolitan areas across the country. A nationwide housing depression is highly unlikely barring any unforeseen black swan event. In the meantime, all we can do is be observant of national and local economic trends and continue to search for older homeowners who could use some financial relief that a reverse mortgage could provide. 


Alissa Prieto: Defending Your Honor


When you should defend your recommendations to outside professionals.

Are you recommending a reverse mortgage only to have their financial advisor or planner dismiss getting a reverse mortgage? Alissa Prieto from Longbridge Financial shares the importance of reengaging with the professional and protecting your reputation.


Inflation is much much higher when you count the cost of borrowing money


Here’s why Americans remain pessimistic despite a strong economy.


Inflation is lower- well not really lower but the annual inflation rate has slowed. We covered that subject in our February 20th blog post ‘Don’t believe the CPI Lie’. To summarize, inflation gets baked into future prices and rarely reverses course. In essence, higher prices become the new baseline to which future inflation is added.




However inflation is much higher than what the government reports because the Consumer Price Index doesn’t account for higher minimum credit card payments or higher mortgage payments thanks to higher interest rates. This is especially difficult for older homeowners or retirees on a fixed income.



However, inflation is much higher than reported. Just because the GDP growth and low unemployment are shining on the economic forecast doesn’t mean that many consumers are under a dark cloud.



This contradiction can best be explained in a new working paper from the National Bureau of Economic Research entitled, “The Cost of Money is Part of the Cost of Living”. This paradox between the indicators and consumer sentiment may explain the increasing American pessimism about the economy.




The working paper reads in part,  that consumer sentiment is “strongly correlated with borrowing costs and consumer credit supply”, more so than mere unemployment and annual inflation rates. The economy is booming, and everyone knows it – except for the American people says the Working Paper.



This should come as no surprise since home prices on average are 50% higher than they were when the pandemic began and the current average 30-year mortgage rate has increased threefold since 2021. Americans seeking to purchase a car may find qualifying for the loan difficult at best and certainly more expensive thanks to higher interest rates.



To put it simply, there’s a divergence between monthly CPI numbers and the American consumer experience.




Then there’s credit card debt. Older Americans carrying a credit card balance. On average cardholders with a balance are paying 5.25 percentage points more than they were before the Fed began its series of aggressive rate hikes. For example, a cardholder with a $10,000 balance only making minimum payments would be paying about $220 a month with a 16% interest rate. Today, that minimum payment would be $300 a month with the average 24% APR being charged by most card issuers today.




To put it simply, there’s a divergence between monthly CPI numbers and the American consumer experience, and older Americans are hurting.



That said, I have a closing thought for reverse mortgage originators watching.



The motivation behind how we approach potential borrowers is key to how receptive they are to potential solutions to their cash flow problems. Knowing the true cost of inflation think of yourself as a member of a search and rescue team. Searching for homeowners who need a solution to their financial predicament and when appropriate possibly rescuing them from unrelenting financial pressures in what should be their golden years.





HECM Regional Limits? A look at HUD’s Legislative Requests


HUD’s 2025 Congressional Budget Justifications reveals proposed HECM changes

Will HECMs return to regional loan limits? This question arises from the Biden Administration’s 2025 Federal Budget and HUD’s 2025 Congressional justifications for their budget request. Today I’m going to walk you through the relevant changes including several notable proposed legislative changes to the Home Equity Conversion Mortgage program.

First, the proposal to allow HUD to establish regional loan limits. The Congressional justification states, “Currently, Home Equity Conversion Mortgages (HECMs) are subject to a single national HECM limit of $1,149,825 regardless of property location”. If approved this proposal would allow, but not require, HUD to establish regional loan limits aligned to the limits currently in place for the single-family Forward program. 

The operative words are allow versus require which means the agency could potentially use their discretion to determine which areas would fall under a lower HECM limit. If Congress were to approve such legislative changes borrowers with higher-valued homes in Low Cost Areas would be most impacted. While HUD’s motives are unclear such limits if enacted would substantially reduce available HECM loan proceeds leaving a much larger equity cushion for homes that far exceed county limits.  

For example, the single-family single-unit loan limit for traditional or forward FHA loans in a low-cost area is $498,257. That’s over $650,000 less than the current national HECM limit.  Those originating in counties with lower average incomes and values would be most impacted. 

But let’s look closer at some real-life examples. Using HUD’s FHA mortgage limit lookup tool we’ll look up the list of FHA limits in Kansas City, Missouri. As we can see every county in the state falls under the low-cost area limit of $498,257 for single units. If a regional limit were enacted, a 72-year-old reverse mortgage applicant in Kansas City Missouri with a home appraised at $750,000 at an expected rate of 7.25% would see their gross principal limit reduced from approximately $271,000 under today’s HECM limit regime down to $180,000- a $91,000 reduction in proceeds with only $498,257 of the home’s appraised  $750,000 value considered. 

Let’s try a state with a concentration of higher-valued homes, California. Here you’ll see both Low Cost Area and High Cost Area limits for single-unit properties by county or Metropolitan Statistical Area. Remember, these are not conforming limits but FHA limits. Some counties such as Los Angeles currently have a $1,149,825 maximum which is the same as our current national HECM limit. Keep in mind, that these loan limits are presently for FHA-insured forward mortgages. 

Other regions such as Kern County and Bakersfield have homes that are typically worth far less than homes in larger metropolitan areas. Kern County’s 2024 FHA limit is $498,257 while areas such as San Jose, San Francisco, and Los Angeles all fall under the high-cost limit. 

When considering these proposed legislative changes remember that similar requests to return to regional HECM limits, prohibiting HECM refinances, among others have been put forth but never passed by Congress.

Other notable proposed legislative changes to the HECM if approved by Congress include requiring HECM counseling for all refinance HECM transactions regardless if they received counseling within the last five years which is the current standard. Another proposal is to clarify the definition of a non-borrowing spouse as the NBS identified at the time of origination, but not to subsequent spouses. A removal of the cap on the number of HECMs that can be insured by FHA is also proposed. Lastly, since HUD has complied with the requirement that the HECM Actuarial Analysis examines the impact of HECM premiums, lower upfront premiums for refinances, and the existing national loan or HECM limit, the agency is asking for a conforming change to collect lower insurance premiums for HECM-to-HECM refinances. It’s unclear if that means the agency could eliminate or reduce the current upfront mortgage insurance premium credit allowed for refinances.

Of course, we will keep you updated should we see any developments regarding these proposed HECM legislative changes.




Is Florida Going Bust?! What HECM pros need to know


Has the Florida dream become a nightmare?


Our exclusive interview with Lorraine Geraci


Is Florida Getting Ready to Go Bust? Here’s what mortgage professionals should know.


A little less than four years ago Florida became a magnet state for Americans seeking lower taxes, more affordable housing, and a warmer climate. In the COVID and post-COVID era Florida was one of the nation’s most sought-after places to move. Fewer lock-down restrictions, a lower cost of living, and an improved quality of life for former city dwellers. In fact, Florida held 10 of U-Haul’s Top 25 Growth Cities of 2021. Florida’s population grew by over 200,000 residents from July 2020 to July 2021 and even more in 2022.


Today, Floridians are facing a host of challenges which in part include skyrocketing homeowners insurance premiums, surging property taxes, and record rent hikes. A dark cloud has begun to form over the Sunshine State. Will housing prices crash? How are retirees in the state being impacted? Will the homeowners’ insurance mess ever get sorted out?


For answers to these questions and to learn more about what’s happening we thought we’d get an update from the front lines. Please welcome Lorraine Geraci, a Florida resident reverse mortgage professional and corporate trainer. Thank you so much for joining us, Lorraine.

Leave your questions for Lorraine in the comments section below.



Here’s how many Social Security recipients have their home paid off


The Social Security Administration’s report provides a treasure trove of data


What do the vast majority of age-eligible potential homeowners have in common? Social Security and for most it’s the linchpin of their retirement security.




With The Senior Citizens League reporting over 40 percent of retirees rely solely on Social Security benefits to survive, it is no surprise that 62% of program recipients report they are dissatisfied with their 2024 3.2% cost-of-living adjustment. Next year’s cost-of-living-adjustment may be disappointing as well. The projected cost-of-living adjustment for 2025 will be only 1.75 percent, a significant decline from the 3.2 and 8.7 percent increase in 2024 and 2023.




While Social Security benefits are adjusted annually based on the percentage increase of the Consumer Price Index (CPI) the accumulated cost of living far exceeds any boost in monthly payouts. We covered some of this in last week’s episode which exposed the CPI lie.




A survey from Atticus found nearly two out of five respondents plan to return to work due to the modest 2024 COLA increase. One 65-year-old woman responded to the survey saying, “Utility, insurance, heating, and food costs have risen 8-14% in the last year. The 2024 COLA doesn’t offset these rising costs”.




A 75-year-old woman said, “My medical insurance supplement nullifies the Social Security increase. The spike in food prices hits hard, especially for those relying solely on Social Security.”


Nadia Vanderhall, a financial planner at The Brands and Bands Strategy Group, told Newsweek, “Even though people can be within retirement for over 30 years, Americans are living longer while things are becoming more expensive.”




In response to the pressures of inflation, older Americans are making financial changes to cope with the higher cost of living. 64% are cutting back on their discretionary spending. This typically means less dining out or shopping. However, even more painful are the 36% who are cutting back on daily essentials. Consequently, older Americans are cutting back on groceries, medications, or healthcare visits.




Could a reverse mortgage provide some much-needed cash flow? Could these cash-strapped Social Security beneficiaries find relief by tapping into their home’s value?




To answer that question we look at the 2021 bulletin Housing Expenditures of Social Security Beneficiaries from the Social Security Office of Retirement and Disability Policy. The report data comes from Census Bureau data that surveyed households with at least one person receiving Social Security. Here’s what they found as of 2018. Renters accounted for 32.5% of Social Security recipients. Homeowners with a mortgage balance represented a median share of 25% of households, and only 12% owned their homes free and clear.


What HECM Pros Should Know About Inflation

There’s one conversation that every financial advisor should have with their clients. A conversation that should also be explored by reverse mortgage professionals with every potential borrower. Inflation. Questions such as “How are you coping with the higher price of everyday goods and services you’re paying today?” can reveal a cashflow crunch that needs to be addressed.

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How the HECM will be impacted by inflation, the national debt, and monetary policy


The economic forces that will shape HECM lending in 2024

Recent economic news has been a mixed bag.

First, the good news. The U.S. gross domestic product or GDP increased at a 3.3% annualized rate in the fourth quarter of 2023 fueled in most part by consumer holiday spending. Regardless, the GDP has exceeded economist’s expectations.

The bad news is that January’s inflation report shows consumer prices rose 3.1% from one year ago pushing the Dow Jones Industrial Average down over 700 points last Tuesday closing down 525 points by the end of the day’s trading. The inflation report undermined investor expectations that the Federal Reserve would cut interest rates several times this year as early as spring. Higher than anticipated inflation also led the 10-year Treasury yield bo jump 15 basis points last Monday. But when investor confidence is low, bond prices increase and yields fall, as there is more demand for this safe investment.

Consequently, HECM professionals have seen a modest erosion of gross loan proceeds in the first weeks in February as higher expected rates reduced HECM principal limit factors. This comes after 10-year Constant Maturity Treasury rate fell from its high of 4.98% in mid October to a low of 3.79% by the end of December.

Yet larger economic forces are likely to present headwinds to any significant drop in treasury rates. The San Francisco Federal Reserve Bank’s report entitled The Long-Run Fiscal Outlook in the United States sounds the alarm on the national debt and it’s long-term impact on interest rates.

“The U.S. federal debt is now roughly as large as the country’s annual GDP. A high and rising ratio of debt to GDP not only raises government borrowing costs but also risks pushing up long-run interest rates”, says the report.

In addition, investors buying treasuries are likely to demand higher returns as federal spending continues to surge. The greater the perceived risk the higher the rate. Also 10-year treasuries expose the investor to long-term risks, chief among them inflation as the return on the investment could be lessened or even erased by inflation.

The last time our national debt was nearly as large as our nation’s GDP was at the end of World War II as a result of defense spending. The debt-to-GDP ratio fell steadily from over 100% in 1945 to a low of 25% by 1975 thanks to economic growth that exceeded our interest paid on the national debt. Without a significant reduction in interest rates it’s likely that the U.S. debt will continue to grow pushing the debt ratio even higher, that and both parties in Congress who continue to push federal spending to record highs.

This doesn’t mean that treasury rates won’t retreat this year, however, there are considerable hurdles to any sizable reduction in the 10-year Treasury rates due to current market conditions. That said, we continue to see modest fluctuations in rates with future releases economic data.