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Three Changes We Should Prepare for in 2014
We are one third of our way through the year. It’s a brave new world in reverse mortgage lending. A complete product overhaul, new regulations, disbursement limitations and new HECM products to name a few. Beyond the headlines we see three major changes we should be preparing for: 1- Younger / Non-Borrowing Spouse, 2- Financial Assessment, 3- New HECM & Proprietary Products.
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11 Comments
I was with Fiancial Freedom and Bank of America. In both cases, there jumbo loans, and I did alot business. However, they followed HUD guidelines.
I am curious to see if the new loans follow that path. If that occurs, then I would expect these loans to look financial assessment. The insuring of these loans in a private market will be critical. Bank of America’s loan looked at each market to see what happening. My understanding is that none of those loans were purchased and BCA unloaded them at a loss.
63 and 59 year olds just waiting for HUD to come out with its latest letter. Borrowers were luke warm to legal mumbo-jumbo previously required for non-borrowing spouse. Now they’re hot to trot. Anyone have the “inside” scoop on how soon we’ll see the HUD letter on non-borrowing spouses?
I think the financial assessment will kill the program. I am finding that the majority of my clients are below 70 years old and carry debt. We are nearing the Forward loan guidelines at a fast pace. When that happens, we are done!
On one hand financial assessment will not substantially reduce endorsements beyond how badly the market is currently doing; however, with LESA (or Life Expectancy Set Asides, if implemented as HUD outlined on Page 21 of the Financial Assessment Guild attached to Mortgagee Letter 2013-28), a significantly (meaning at least 10% of the current percentage) higher portion of counselees will not go to closing.
As to the issue of the current pool of Surviving Non-Borrowing Spouses [or SNBSs, i.e., Non-Borrowing Spouses (NBSs) whose borrowing spouses have passed away but the loan is still being wound down], the solutions are few without the help of the courts. Unfortunately HUD is acting stubbornly in this regard and will not concede the issue even though HUD is wrong.
What HUD needs to do is to issue a Mortgagee Letter which states that the Secretary has determined that the law opens HUD to financial risk from SNBSs and state that HUD will not treat SNBSs as homeowners for displacement of homeowner purposes as more fully described in 12 USC 1715z-20(j) on those HECMs whose case number assignments are more than 30 days after the issuance of that Mortgagee Letter. HUD should then declare that all lenders must immediately place any HECMs which are in due and payable status because of a SNBS situation (i.e., due because of the death of the borrowing spouse) in assignment and do the same with any HECMs which go into the due and payable status because of a SNBS situation.
Other NBS situations exist including those which are in due and payable status because the borrowing spouse no longer can live in the home due to health or mental issues. Again the same principles should apply as those applicable to SNBS situations.
I do not believe it is in the best interests of the HECM program to allow younger borrowers or make substantially other changes to the HECM program to accommodate NBS situations on future case number assignments.
As to new HECM products get ready for an interesting roller coaster ride. Useful proprietary products may be some time off yet even if more lenders offer the type currently being offered.
Shannon,
Good presentation as usual. Your timing was excellent on bringing these three items up. The industry must be on guard and be aware these changes are coming.
We will see change in who will be able to qualify for a HECM, no doubt about that. We will also need to re-set our marketing strategy and start targeting different markets.
I agree with you Shannon, this does not mean we will not be able to provide the need based borrower but it will not be like the past. Fewer need based seniors will be able to qualify!
In my opinion loan originators are going to have to start marketing to the more affluent, those with lower home debt to zero home debt. This should be a supplement market to what they are doing now.
There is a lot of equity lurking out there in homes owned by seniors, do your home work, go after that market. Also, small community banks, credit unions, financial planners, accountants and attorney’s, all great prospects for the HECM product.
In short Shannon, there will be opportunities out there but they will not necessarily come knocking on the door, we have to go out there and find them.
It will be a tougher market then many are used to, their will be those that will not make it in our industry and their will be those that will emerge more successful than they ever were. It will be a very interesting year Shannon. Again, great job!
John A. Smaldone
http://www.hanover-financial.com
Good information, regarding younger spouses being incorporated into the HECM loan with reduced principal limits; I believe this will be a double-edge change. One, the PL will be reduced so it could eliminated many borrowers who have mortgages on their homes, however many of the younger spouses will still be working and thus this could help when the financial assessment comes into effect.
The current state is just another unfortunate example of Government involvement in a product that was intended to be used as a “supplemental income source” that would allow folks to retire in place and in essence to pay their own way. I do not know the gist of the lawsuits filed by AARP that have provoked such change as they have not been true friends of the program since they were not allowed to be sole providers of the counseling in the early years.On the current trend it will look like all the other programs that will require you to a learning curve regarding home ownership that are found on the forward side which is too little too late
for most of our customers.
Never have I seen the real reason for the demise of the fixed rates, that being the pricing structure by the Government.
I dare say that we can buy insurance much cheaper on the open market to guarantee the value of the home than we are forced to pay to FHA.
I think it is time for the products to be restructured by the capital markets and get the government out of our business.
The current state is just another unfortunate example of Government involvement in a product that was intended to be used as a “supplemental income source” that would allow folks to retire in place and in essence to pay their own way. I do not know the gist of the lawsuits filed by AARP that have provoked such change as they have not been true friends of the program since they were not allowed to be sole providers of the counseling in the early years.On the current trend it will look like all the other programs that will require you to a learning curve regarding home ownership that are found on the forward side which is too little too late
for most of our customers.
Never have I seen the real reason for the demise of the fixed rates, that being the pricing structure by the Government.
I dare say that we can buy insurance much cheaper on the open market to guarantee the value of the home than we are forced to pay to FHA.
I think it is time for the products to be restructured by the capital markets and get the government out of our business.
Bill,
Wow, where does one start?
You need to speak with the products group at your lender. It is not the value of the home that is being protected but rather the payoff of the mortgage. That is why proprietary products have historically had much lower PLFs than HECMs. As longevity increases, HUD will experience more and more losses in its HECM portfolio.
One reason HECM insurance is so low is the insurance company, FHA, does not have to return a profit to shareholders or policy owners. Another reason is that taxpayers have always paid for all general, operating, and administrative costs of the insurance program. That is done through the annual budget. Any other insurer would have gotten out of the industry decades ago but HUD has the US Treasury backing up its “mistakes.”
“Never have I seen the real reason for the demise of the fixed rates….” What are you saying? There has never been “the demise” you reference. HUD has always welcomed the use of fixed rate products. Why all Standard products had to go away is that the growth in values of so many individual homes (which are collateral for HECMs) in the last half decade are lower than the amounts required for FHA to break even. All that means is MIP alone is now projected to be insufficient to pay off all of the loss reimbursements to note holders including HUD at the time of the related HECM terminations on new HECM Standards; that is why there are no more new Standards.
AARP is right on the non-borrowing spouse issue as seen in court. HUD stubbornly and knowingly took a position on non-borrowing spouse displacement that violated the law and rather than going to Congress to get it corrected so it made financial sense, just sat back confident it would win any challenges because it is HUD. It is wonderful we have a judiciary system in this country that will clobber such hubris. HUD is wrong on this issue and so is much of the industry.
Unlike you, I am glad the government is in this business even when HUD is wrong.
It is truly a shame that so many of the changes made and ones that are coming, affect the Seniors that really need this program to maintain the roof over their head! With rising utilitiy costs, food and general living cost, Seniors find they cannot live on their Social Security and pensions, if they have a mortgage payment.
. Sad to say, the initial purpose for the Reverse Mortgage program has been forgotten!!
Ms. Hanson,
What we are seeing develop today is in fact the real purpose of the program as defined in the original law and even HUD HECM Handbook 4235.1.
It is unfortunate that so many good people tried to put the HECM to uses that all but destroyed the MMI Fund. Those who talk about aging in place and other ideals believe that somehow HECMs are fundamentally different from other mortgages. Almost all mortgages (except bridge mortgages) were created with the idea that borrowers would have the mortgage in place for a number of years which is a form of “aging in place.”
It is too bad that so many good originators strayed away from the original purpose of the program per HUD and the HECM law itself. Aging in place was not one mentioned in the purpose clause of the law or by HUD in Handbook 4235.1.