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It’s difficult to stand and keep taking punches from a largely misinformed media when it comes to reverse mortgages. On December 20th the Wall Street Journal published a Peter Bell (NRMLA President) response to an article the week before. Bell spells out the massive need for the program exposing the sad truth about American retirement. Today, most retirees have less than $55,000 in savings leaving their home as a source to fund living expenses, healthcare and home maintenance. That leads to the ugly question as Bell states “The repercussions of denying homeowners access to their housing wealth would have great costs to…
3 Comments
I agree the HECM program should make some changes to sustaine the program. I have been in this business over ten years and the first eight years we only had the adjustable HECM. The line of credit option affords the borrower options to take care of emergency situations and maintained independence. I would like the HECM for purchase to be continued with the fixed rate, with counselors reviewing the borrowers financial assesment for affordability. This is a unique product where the borrower makes substantial investment to secure the loan and in most cases the borrower are not in a distress situation.
Mr. McGee,
I am glad to see you are part of S1L per Linked In info. I was very surprised you have only been offering fixed rate HECMs for just two years since you were with MetLife for over 4 years prior to joining us at S1L. Was there a problem of offering fixed rate HECMs in Georgia?
Here is a little history on the fixed rate Standard:
The fixed rate HECM Standard has been offered since late 2006. Per HUD public information taken from its monthly Single Family Outlook Reports, in fiscal 2007 there were 120 endorsements. That grew to over 2,600 endorsements in fiscal 2008, over 13,200 endorsements for fiscal 2009 and has been no lower than 67% of all endorsements since then.
While the fixed rate Standard can be somewhat useful in purchase transactions, it also have been greatly overused in that arena. While in fiscal 2009 fixed rate Standard HECMs used in purchase transactions was less than 36%, last fiscal year it was over 96%!! Reading some responses on the recommended use of fixed rate Standards in an otherwise all cash home purchase was alarming. Why put seniors at potential risk to earnings arbitrage and investment loss?
If fixed rate Standards had been used in less than 50% of all HECM for Purchase transactions last fiscal, I would be very supportive of your position.
The program has needed tweaks for over 22 years.
For example the non-borrowing spouse issue did not arise in the last two or three years. HUD has generally felt that the statutory requirement could simply be ignored. AARP and the courts are proving HUD wrong. What could have been a simple fix 22 years ago is now being fought in the courts. Here legislation is needed.
The program has never needed a solely closed end product. Now more than ever, we need a very flexible hybrid. If seniors need a closed end fixed rate product then let them choose the amount they want fixed rate closed end and adjustable rate open end. If legislation will get it done sooner then enabling legislation should be initiated ASAP.
As to financial assessment, why is it taking so long to bring into the approval process? FHA and the industry do not need the reputation that it is knowingly producing HECMs which will end up in default or foreclosure due to nonpayment of property charges. Surely HUD has studied the concepts long enough to present its idea of financial assessment.
Finally, counseling needs an overhaul. It needs to incorporate Savers into its protocol. Instead of financial assessment being based on a historical basis, it needs to be done on a post full employment basis. Here counseling agencies are creating the false impression that the average age of the youngest borrower has suddenly declined at an alarming rate, so why are they assessing the financial situation of fully employed seniors as if they will always be fully employed through the very, very ineffective FIT program?
So when it comes to the HECM program, HUD has a long way to go to prove it can handle the program without significant oversight from the OMB and Congress. Just look at how few legislative proposals they have made in the last 4 years when it comes to HECMs. When OMB tried to put a measure of realism into the HUD budget request in mid 2009, HUD responded as if the OMB did not know what it was doing. Yet who was right? While HUD needs a freer hand, it also has shown itself to be less than responsible when it comes to responding to inherent errors in the HECM program. This is the why stronger checks and balances are also warranted.