A Look Back at a Bumpy 2013
For reverse mortgage professionals 2013 will go down as a bumpy ride. And what a ride it has been. In the last ten years I cannot recall a year with more substantial and industry-changing developments. 2013 was rang in with HUD’s announcement they would be ceasing the problematic Standard Fixed Rate Product. While it helped many borrowers who needed maximum proceeds to payoff existing mortgage balances it also added to FHA’s risk of future insurance payouts from its Mutual Mortgage Insurance (MMI) fund. One look at the amortization chart of a fixed rate loan with the full upfront distribution and it didn’t take a mathematician to figure out substantial risk was baked into the fixed rate loan. Unfortunately generous payouts in loan compensation unduly influenced some originators where a more flexible adjustable rate loan may have been more fitting.
While politicians may be adept at spending money they are also politically astute knowing a faltering FHA Home Equity Conversion Mortgage program required some painful changes lest they incur the wrath of watchful policymakers and voters. HUD asked for and received the authority needed to make program changes witht the passage of the Reverse Mortgage Stabilization Act which led to product consolidation. After eliminating the standard fixed rate in April HUD moved to eliminate the standard adjustable and both saver loan programs altogether in favor of one two-tiered product.
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9 Comments
Shannon,
You did a great job re-capping 2013. As far as 2014, I feel we will have hurdles to cross.
The financial assessment rule will be a thorn in the side for everyone until we find out what HUD will actually implement.
My concern is the way it is structured now, each lender will be determining their own approach for underwriting the risk. When you don’t have standardization you have for confusion and in some cases unfair competitive advantages.
We will definitely have to approach the industry differently. We will need to focus more on the affluent and the borrower with a lower or zero loan balance on their home.
With the new changes already implemented we are seeing in the range of 15% lower principle limits. Along with that we are now faced with controls on the amount of funds that can be disbursed, which is 60% of the principle limit. If the borrower has obligations that require the initial disbursement to go over the 60% limit, than we see a higher IMIP up to 2.50% being imposed on the borrower.
Either way, this will eliminate many seniors that would normally be eligible for need based reverse mortgages.
On the bright side of things we are seeing over 10,000 seniors daily reaching the age of 65 and about 8,500 reaching age 62 daily. This trend is estimated to continue for the next 19 years, that is very encouraging for the reverse mortgage industry!
Focusing on the more affluent offers many advantages, home values for one and the ability to show a senior how they can leverage the equity in their home, which will be tax free.
Those seniors that are doing well financially buy Boats and Recreational Vehicles and other large ticket items. They would love to have a vehicle such as a reverse mortgage that would allow them to buy that new boat with tax free funds and not have one dime in payments to make.
This opens the door to call on Boat dealers and Recreational Vehicle dealers. You can show them how they can increase sales through what we have to offer their prospective senior buyers.
In closing I must still say, be prepared for some rough roads ahead but also go out there and capitalize on all the opportunities, which are available. The year 2014 can be a great year in our industry if we make it happen.
John A. Smaldone
John,
As to HECMs I have never been a fan of working with salespeople who offer luxury items. What happens if the transaction is a clear suitability problem? Will you advise the borrower not to move forward if a HECM is the only way to pay for that item?
While it is clear that seniors should use HECMs to provide for the needs addressed in the purpose clause of the federal law pertaining to HECMs, buying a recreational vehicle or a boat is not among them. Even the guys on Pawn Stars are always saying that investing in a boat is simply throwing your money away.
Also I am dealing with a senior who bought a RV for over $100,000 while his wife was living but her quickly failing health never allowed them to use it. Today a few years later that RV is still not being used and is worth less than $40,000. When we looked into a HECM taking out the $75,000 debt on the RV, the children rebelled. They even rebelled against the idea of selling the RV to raise cash for their father. They are upset because the mother never wanted the RV in the first place.
I am for the wise use of proceeds. This is not among them unless the senior can otherwise afford luxury items and if that is true, why get the HECM?
I hope you and your family had a great new year’s day!!!
Cynic,
I hope you and your family had a very Happy New Years Day as well.
I understand where you are coming from and I don’t entirely disagree with you. However, times have changed, primarily due to all the new changes HUD has implemented.
We will see many seniors not qualifying for a reverse mortgage like we did in the past. As much as I hate to see this, I know I must face the reality of it.
I mentioned the Boat or recreational vehicle because there will be those with the where with all to purchase those items. Many of these seniors are not in a financial bind, on the contrary. My intent was to point out the use of a seniors property in a way that they can advantageously leverage their assets.
We are still in the business to sell, we still are working to earn a living. All I am pointing out is the different ways we may have to look at in order to survive.
Thank you my friend,
John A. Smaldone
Why do we use the term “tax free?” to describe what are clearly accrued costs and proceeds from a nonrecourse mortgage? They will always be tax-free when the borrower or heirs pay off the mortgage in full but are not generally otherwise.
With over 60% of HECMs in due and payable status going into foreclosure or in one of its cousins, short sale, deed-in-lieu of foreclosures, etc., we should be more forthcoming and far less misleading.
The interest on annuities is tax-free for some annuity owners because of large deductions, no taxable income, etc. But no ethical annuity provider would ever call annuity proceeds tax free. This is due in part since income over a minimum amount requires a Form 1099. A Form 1099 is required for HECMs whenever over a minimum of the amount due is not paid for by the borrower or heirs or the value of the home at termination is less than the balance due whether the note owner is fully reimbursed for all losses through FHA insurance.
The tax law is clear.
Let us hope 2014 is the year we begin to significantly penetrate the 98%!!!
What is surprising is that there was not even a single mention of the Extreme Summit. While Otto Kumbar and other industry leaders may be promoting this campaign, its impact on the future of the industry so far is less than memorable as demonstrated in this industry update. With all due respect some of us view the campaign as nothing more than an effort to try to hold good originators inside the industry.
Certainly industry leaders do not want to look like they have no strategic plan to significantly drive up endorsements before the end of the decade or somehow piloting rudderless ships but that is exactly what the HUD actuaries have concluded.
The HECM actuarial report shows total industry endorsements going down to about 54,600 this fiscal year and gradually rising through fiscal 2020 to about 78,200. That stands in sharp contrast to the unrealistic goal of reaching 300,000 endorsements for fiscal 2018 touted in the less than memorable Extreme Summit promotion.
How in the world we will see 50,000 endorsements this fiscal year is a real question mark. The unrealistic goals of the Extreme Summit are doomed to failure. Why our leaders believe that exaggeration and lack of of realistic assessments should be fed to the members of this industry points up their lack of respect for those who actually originate and how they do not trust our partnership with them in the growth of our industry. It was due to this lack of respect for NRMLA convention attendees that some of us stopped attending such rallies.
If growth is the way to right the HECM industry ship then expect to see our ship taking on more water for at least the next two fiscal years. It is always easier to do campaigns than to do the hard work of gaining the acceptance of mass affluent senior population and their ethically competent financial advisors.
Let us hope that Otto Kumbar and his fellow Extreme Summit participants did their homework and we will see their lofty goals come to fruition by fiscal 2018; however, for now there is nothing to indicate that those lofty goals have any chance of fulfillment.
Let us hope that 2014 proves to be a remarkable year for endorsements but prepared to endure another fiscal year of endorsement setback.
HAPPY NEW YEAR—–SHANNON
Thanks, Shannon, for all you do for our industry and to help us stay abreast of industry changes.
I especially like your Friday Food for Thought which helps us be better loan originators AND better people.
Happy New Year and look forward to seeing and hearing from you next year.
Tom,
Thank you very much. Glad you find value in our content. Happy New Year!
Happy New Year!
I agree Tom and thank you for your efforts in keeping all of us in the know whether it’s good, bad or ugly. Here’s to a better 2014 then we had in 2013.