This week’s news roundup
[View the HECM Survey Results Here]
To say that HUD’s most recent changes to the Home Equity Conversion Mortgage were met with mixed reviews would be the understatement of the decade. Yet somewhere between hyperbole, user-optimism, and predictions of an industry apocalypse lies the truth. The tension between protecting against potential FHA insurance claims or loan defaults and meeting the need of future homeowners to leverage their homes in retirement has accelerated in recent years. In the wake of the program’s most recent overhaul AARP and industry professionals weighed in.
 AARP’s Public Policy Institute’s Lori Trawinski said that higher costs and lower lending ratios may make the loan less attractive in her recent comments to Reverse Mortgage Daily. “So if someone is counting on a certain amount of reverse mortgage proceeds to be able to pay off a forward loan, it could be that with the new principal limit factors, they may not get enough proceeds out of the loan to do that.” Anecdotal reports from originators indicate that we may be still attracting a significant number of needs-based borrowers who need maximum proceeds to payoff an existing mortgage. However Trawinksi’s recent comments seem to contradict that trend. “For about three quarters of borrowers, the upfront premium went from 0.5% to 2%, so that’s a significant increase. It may dissuade some borrowers from going forward with the loan.”
Download the video transcript here.
1 Comment
Is there any question that the lowering of the PLFs was a huge hurdle to encounter? Demand is suppressed not only because of that but also because the upfront MIP was adjusted to 2% for all borrowers.
(For borrowers who intended to incur disbursements of 60% or less of the initial principal limit in the first year following origination, this represents about a 2.5% to over 3% decline tin the total proceeds available at closing due to the financing of all upfront costs.)
Future demand looks to be lower for a significant period of time. This is clearly indicated from the amount of case numbers assigned in each month of the last quarter of calendar 2017. HUD has yet to post any case number assignment data after 12/31/2017.
There is a huge need for marketing with new ideas and with targeting to previously unrecognized sources of demand while at the same time continuing to develop those sources which are currently being targeted.
Lenders need to devote between 10% to 15% of total revenues annually to the development of new marketing for new sources of leads with little expectation of return in the near term. This cannot be an effort headed up by less proven marketers. Without new sources of leads, the future is that of continued secular stagnation.