Researchers present HECM fixes last week

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How do you fix the reverse mortgage and expand its availability? Researchers presented their ideas last week

There’s no shortage of ideas when it comes to just how to strengthen the federally-insured reverse mortgage and expand its reach to older homeowners. Last Monday, the Brookings Institution hosted a symposium entitled “Reverse mortgages: Promise, problems, and proposals for a better market”. Participants included AARP’s Debra Whitman, Stephanie Moulton of Ohio State University, University of British Columbia professor Thomas Davidoff, Longbridge CEO Chris Mayer, and Laurie Goodman from the Urban Institute. The event is part of the Brookings Institution & the Kellogg School’s meetings on retirement security. These are not pending proposals for the Home Equity Conversion mortgage, nor are they being debated by lawmakers. However, these policy think tanks play an important role in our federal government and help shape public policy.

A Perversion of the HECM?

AARP Frowns Upon Strategic Use of HECM in Portfolio Management

aarp-1Creativity unlocks potential markets and opens up possibilities. It also makes you a target of critics. In recent years the long overlooked principal limit growth factor (or as many refer to it as the line of credit growth rate) has garnered a second look by financial professionals and our industry as a potential means of managing risk in a retirement portfolio.

“The use of reverse mortgages to hedge investment portfolios is a perversion of the original intent of the HECM Program, a misuse of FHA insurance, and puts the FHA insurance fund,” wrote AARP in a recent post. “HUD should take steps to ensure that homeowners who need money have access to HECMs, but should prohibit the use of HECMs for portfolio hedging.”

A perversion of the HECM program’s original intent? We have revisited the Home Equity Conversion Mortgage’s intent citing the language in which the program was created. Nowhere does it mention…

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Sacred Cows

HECM Line of Credit (Principal Limit) Growth Rate in AARP’s Crosshairs

reverse mortgage newsSacred cows. Those tenets or beliefs that have been long held above reproach and which are seen as immune from criticism. For the Home Equity Conversion Mortgage, one benefit has been largely left unscathed, that is until now. AARP is recommending the elimination of the principal limit growth factor, or as many refer to it the credit line growth rate feature.

There are many competing and cooperating opinions that are voiced when HUD makes revisions to the federally-insured reverse mortgage program. Industry stakeholders, trade groups and consumer advocacy groups. While all groups stated goal is to serve the needs of aging homeowners, the proposed policies have profound differences in implementation, and most importantly on the future appeal and accessibility of the HECM to future borrowers…

Download a transcript of this episode here.

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An Unlikely Ally?

The prospect of not continuing to offer reverse mortgages has created unlikely ally for the program, AARP according to Sterne Ageel. Wall Street sees the continued profitability of the program and TWO: AARP is seen as a defender of the HECM. While AARP has long educated consumers…

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AARP Regulations – Have they gone too far?

That may be just what future reverse mortgage borrowers may need to do to satisfy federal regulators before getting the loan. AARP recently called for more ‘special protections’ to help prevent serious harm (full story here). What is puzzling is the mixed messages that often come from AARP regarding reverse mortgages; first endorsing and then later criticizing.

When it comes to fraud is our industry rife with it? AARP’s senior attorney cited high fees that ‘scammers’ can use to suck away people’s home equity. Really? Are we on the same page? HUD restructured the loan origination calculation for borrowers lowering fees dramatically from 2% of the homes appraised value some time ago not to mention the introduction of the HECM Saver last October. When it comes to fraud do we have any real evidence that shows a disproportionate problem with reverse mortgages versus traditional loans?

Certainly high fees were a black eye for reverse mortgages but that issue has long been settled by both HUD and the market with mandated loan origination reductions, lower costs to consumers due to the secondary market and new low cost products like the Saver. Are high fees the risk to borrowers exposing them to losing their home or is it a lack of education or responsibility of the borrower to meet the obligations of insurance and property taxes? I would venture to say it is the later, and steps have been taken to reduce that risk to both borrower and lenders alike.

Beyond mandatory counseling, duplicate warnings, disclosures and all caps ‘buyer beware’ statements in an application what additional protections really can be practically put in place? No one would disagree that consumers deserve sound product education and protections but in the end will they need to chew through barbed wire to get a reverse mortgage? What segment of borrowers could potentially be hurt the worst from regulations that treat the HECM as a toxic loan of last resort and what message does this send to our new segment of higher net worth borrowers who may be looking at a HECM for the first time?