The California Connection to the HECM

California HECM program reverse mortgage

California: The lynchpin of the HECM’s economic outlook

Since 2009 California has led all states for total HECM endorsements. In fact, according to the Fiscal Year, 2021 Independent Actuarial Review of the Mutual Mortgage Insurance Fund, California accounted for 26% of all HECM endorsements in the fiscal year 2021. Florida, Arizona, Colorado, and Texas trail significantly in endorsements accounting for 7-8% of overall loan volume respectively. California is home to some of the nation’s highest-valued homes and also has seen some of the most rapid growth in Home Price Appreciation. Consequently, any broad declines in home values in the Golden State will have a marked impact on the 2023 and 2024 economic valuation of the HECM Program.

FHA acknowledges this sensitivity in its 2021 report. “HPA is a lagging indicator that tends to overstate
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Just one more thing

The following originally appeared in HECMWorld in September 2020

“I’ll take my family on a nice vacation once I make enough money.”

“I’m going to create a killer marketing plan that will attract more homeowners and help me close more loans.”

These are just a few examples of the rationalizations for why we’re doing things the way we are and avoiding the work required to reach our goals.

You may not have the money for a family cruise, but you may be able to take your family on a weekend getaway and not break the budget in the process. An imperfect business plan is better than nothing. Why not put pencil to paper and begin with a rough outline?

Truth be told, it’s the little things that often yield the best results. Taking 15 minutes without distractions to sit with your partner, child, or colleague to ‘check-in’ maybe ‘just one more thing’ but it may be the most important thing for them that day. Our lives have an overabundance of ‘just one more thing’ to do. The trick is to confront our tasks as if they were the last thing we will do.

What’s most important at this very moment? Taking a moment to give a sincere compliment? Inviting over your friend who’s overwhelmed to simply sit and relax in your backyard? Calling your widowed borrower to see how they’re faring during the pandemic? Is it shutting down your email and silencing your cell phone to make 15 outbound sales calls?

Each of us knows what that ‘just one more thing’ is. The question is what will we do without for the moment to make it happen?

Proprietary RMs Gain as HECM Evolves

Lenders continue to expand their proprietary reverse mortgage offerings – a timely development FHA sees as encouraging.

“We are considering some other changes [to the HECM program]”. Those are the words of FHA Commissioner Brian Montgomery during a media conference call for the release of FHA’s report to Congress last week. “I don’t think we ever envisioned that the FHA reverse mortgage product would dominate the market, for now, almost 30 years. I know there have been some proprietary products that have grown in the industry.”

It was in fact 32 years ago that Congress passed a bill creating a pilot program of the Home Equity Conversion Mortgage. As it’s said, ‘the rest is history’.  That history shows us subdued HECM loan volumes until 2002 when endorsements broke 10,000 units for the first time and then skyrocketed seven short years later to a staggering 114,000+ loans.

Did Congress anticipate that the federally-insured reverse mortgage would consistently represent over 90% of the market? Most likely not. In the last decade, both HUD and FHA officials have expressed their desire for an expansion of the private market and less reliance on FHA. In the years leading up to the housing crash of 2008, there were a handful of popular private reverse mortgage options on the market. While primarily popular with homeowners with values that exceeded FHA’s lending limit they did not significantly shift new applicants with moderate home values away from the HECM program.

Traditionally private or proprietary reverse mortgages have been confined to homes that appraised above the national lending limit. Recently, however, a few select lenders have broadened their product offerings- one to include properties valued as low as $400,000. This could entice potential borrowers who wish to avoid the significant upfront and ongoing costs that come with FHA mortgage insurance premiums.

What would possibly attract more homeowners to a private reverse mortgage solution? Here are just a few existing and potential features that are appealing.

  • Broader eligibility for those with home values closer to the national median home price.
  • Increased access to the home’s value for properties in areas with historically-rapid home appreciation.
  • Simplified underwriting and qualification guidelines.
  • Risk-based interest rates or loan pricing based on credit history and average regional appreciation rates.
  • The flexibility to include a line of credit along with period lump-sum payouts.

Despite the incredible potential of private reverse mortgage loans the HECM continues to attract the lion’s share of older homeowners. As long as housing market conditions remain ideal expect to see more innovative private products that may move us toward a more diversified market.