Do HECM Reforms Fix Past Losses?

ePath 100K RM leads

Can recent HECM reforms ever repay the losses of the past?

reverse mortgage newsAn honest examination of the reverse mortgage would recognize that many loans originated prior to 2013, could easily become a future liability. Case and point the now defunct ‘Standard Fixed Rate HECM’. Introduced in the midst of an overheating housing market. With needs-based borrowers comprising a significant portion of HECM loans taken, the seeds of trouble sown came to fruition as housing values plummeted, causing many of these loans to ‘cross-over’ where the outstanding loan balance exceed the home’s value. Subsequent insurance claims spiked.

Complicating matters is the method used to calculate the HECM program’s economic value which swung wildly from a positive valuation of $6.8 billion in 2015, to a negative value of $7.7 billion for the fiscal year 2016.


What are your thoughts? Please leave your input in the Comments section below, and share this post on social media using the Twitter, Facebook and LinkedIn icons at the top of this page. Thank you!

reverse mortgage news

BREAKING: HUD Cuts PLF Factors, % Rate Floor & Increases Upfront FHA Insurance Premiums

reverse mortgage news

Without any prior warning or industry comment, HUD formally announced an increase of upfront insurance premiums for all borrowers, regardless of initial distributions, to 2% upfront, and .5% for ongoing mortgage insurance premiums. The agency stated the need to ensure the continued economic sustainablity of the HECM program and its fiduciary responsiblity to taxpayers.  [See Mortgagee Letter 2017-12] [ Wall Street Journal Article View on Facebook to see full article]

HUD has lowered the interest rate ‘floor’ from 5.06% to 3.00% in it’s PLF tables, essentially pushing lenders to compete on interest rates and margins. We expect to see more lenders switch from the monthly to the annual adjustable LIBOR index in response. In addition the new PLF tables accomodate a rising interest rate enviornment with lending ratios provided as high as up to 18.875%, wheras the previous tables zeroed out lending ratios at 10%. [New 2017 PLF Tables] [Old 2014-2017 PLF Tables]

In our analysis, the reduction in ongoing FHA premiums will significantly reduce the ongoing growth of the HECM’s Principal Limit (available funds), or what many refer to as the line of credit. This development will substantially change several strategies touted in recent years, such as the Standby Reverse Mortgage, and those seeking to use increasing available funds as a hedge against unexpected financial shocks in retirement.

Principal Limit Factor will be reduced from 64% to 58% on average and an approximate 20% reduction available funds for most borrowers:

Screen Shot 2017-08-29 at 4.41.43 PM
* 20% reduction with new PLFs and lower interest rate floor after October 2nd, 2017

HUD is soliciting feedback from interested parties until September 29, 2017. Feeback can be submitted to:

Official Mortgagee Letter 2017-12 “Home Equity Conversion Mortgage (HECM) Program: Mortgage Insurance Premium Rates and Principal Limit Factors

reverse mortgage news

What are your thoughts? Please leave your input in the Comments section below, and share this post on social media using the Twitter, Facebook and LinkedIn icons at the top of this page. Thank you!


Just How Far?

Having conducted over one hundred training sessions with fellow reverse mortgage professionals a common question is raised. Just how far should I go in following up with a potential borrower? Unfortunately many stop after one attempted phone call or if the prospect shows any signs of disinterest. This is tragic since the the majority of homeowners we contact are not ready to jump on board, sign the application and schedule counseling during our first encounter.

Continue reading

The New Face of Reverse Mortgages

Many of our viewers know that often our industry’s image has often been shaped in part by negative media stories and misinformed columnists and consumer groups. In essence we have found ourselves on the defensive having to respond to claims which are often false. The Extreme Summit seeks to transform the public’s perception of the HECM through…

Continue reading