This week: Former FHA Commissioner takes aim at reverse mortgages and a clear and present danger to the HECM
Former FHA Commissioner David Stevens wasn’t merely providing some suggestions on how to improve the Home Equity Conversion Mortgage. He also took aim squarely at the industry, its alleged practices, and those who have made the origination of HECM loans their chosen profession.
Last week we got our first look at the commissioner’s comments on LinkedIn where Mr. Stevens posted a link to a Wall Street Journal article on FHA’s new appraisal rule. The comments were both lively and heated. Stevens accused reverse mortgage lenders of making outrageous profits and engaging in predatory sales. He also slams the use of celebrities and presidential candidates as ‘pitchman’.
Stevens’ proposals to reform the HECM include mandatory credit score guidelines, mandatory set-asides for all borrowers, and the elimination of full-draw HECM loans...
10 Comments
If Mr. Stevens saw the problems when he was FHA commissioner, why didn’t he fix them?
I just received my HECM Annual Occupancy Certificate. It says “Warning: Section 1001 of the Title 18 of the United States Code makes it a criminal offense to make a willfully false statement or misrepresentation to any department or agency of the United States government as to any matter within its jurisdiction.” If occupancy misrepresentation is so common, why don’t see any prosecutions on Mortgage Fraud Blog?
Just flabbergasted at David Stevens comments. I agree with Don above, but I think Mr. Stevens never did truly know enough about the program to approach it correctly. This program has undergone more changes in my 13 years of originating than any other loan program in my lifetime. There are appraisals in the SAME areas of the country coming in overvalued on other loans and refinances. This is not a nationwide problem it is more a problem of how appraisals are calculated and how Real Estate is local and not national. There is a LOT less predatory lending now than ever and I am sorry Mr. Stevens, but you try to make a living on our commissions. They are no longer anywhere near what we could have made in the past. Personally, there are so many reiterations of RM products out there now, I don’t know how there is a way to get a handle on any of it. All I know is the 62+ crowd needs and wants the product, but HUD has made it harder to get; therefore the MMI fund will continue to shrink as less applications come in and then we will hear cries of help once again. I don’t mind a little strengthening, but LESA’s for EVERYONE would make the program literally impossible in high tax states like Texas.
Without a full investigation, how would HUD determine when the house was not occupied by a borrower. That is easy if all the borrowers died years before termination but what if it was a question of a surviving borrower fulfilling the residency requirement? There are so many reasonable excuses tenant could hide behind that it is ridiculous. If they forged the signature on the card and it could be proven the tenants did that, that would present a whole lot of different set of facts. Personally I do not believe HUD wants to engage in criminal court cases on this matter.
Melinda,
First, the lower the volume of endorsements in a fiscal year, the lower the loss for that fiscal year. Let’s take an example. If the average loss per HECM endorsed was $35,000, more HECMs would just be more losses of about $35,000 on average. Yes, new endorsements bring more MIP but they also bring more loss. In normal business, some losses can be reduced by a larger volume of sales. That is because there are fixed costs that can be spread out over more units sold.
In HECM land there are few, if any, fixed costs related to the MMIF. Generally all the fixed costs of the HECM program are paid out of the appropriations made to HUD annually to pay for its normal operating costs such as rent, salaries, utilities, telephone, office furniture and equipment, and employee benefits.
The general rule is, the smaller the endorsement volume for a fiscal year, the lower the MMIF loss for that fiscal year.
We agree about LESAs. But here is my take. Does any believe that someone who has poor property charge payment habits in their 60’s will improve by the time they are 85 when the LESA stops paying those charges?
Great …just what the industry the consumer needed more regulations that it make it more difficult for a senior to benefit from the program.
Luis,
Where do you find that? Stevens cannot make rule changes to the HECM. For him those days are OVER!!
The industry needs higher loan limits that can provide more funds to borrowers and appraisers that give a good appraisal not the low appraisals that cause the client to be turned down for a loan they need. We don’t need more appraisal restrictions but fair market appraisals. Lenders profits need to be lower and these loans need to actually help the borrower. Fees are way to high on these loans.
Linda,
Other than your comment on low appraisals, no agreement here.
Can anyone explain why a reverse mortgage of 1/2 the equity would require mortgage insurance? And that mortgage insurance cost would increase in price each month?
Richard, that’s an excellent question. The reason lawmakers included a requirement for FHA mortgage insurance when they created the program is that unlike a traditional mortgage, no payments are required or typically made which leads to the loan balance continually growing with principal and interest. A reverse mortgage is truly a negative amortization loan. The remaining equity is projected to last over the borrower’s time in the home, but the insurance makes the lender whole if the loan balance exceeds the home’s value when the loan is ultimately terminated.