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Increasing Restrictions & Possible Lower Lending Limits May Spur the Return of More Proprietary Loans
Having absorbed the recent elimination of federally-insured reverse mortage products, principal limit reductions and increased underwriting requirement many ask “when will we see proprietary reverse mortgages again?”. Good question. Presently our national lending limit remains at $625,500 through the end of this year thanks to HUD’s mortgagee letter in December 2012. Will HUD continue to extend this lending limit? Perhaps but unlikely. In the wake of a record 1.7 billion dollar bailout from the treasury and unrelenting scrutiny from lawmakers due to projected losses in FHA’s insurance fund, many may feel little sympathy for seniors with higher valued homes. In a risk-adverse and financially insecure political climate few will advocate for retirees they consider well-off. Additionally many industry leaders expect a return to a $417,000 national lending limit in 2014. Politics and budgets aside it comes down to the pivotal role of money. Mike McCully with New View Advisors said…
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5 Comments
Mortgagee Letter 2013-27 turned the HECM into even more of a niche product within the mortgage industry. Proprietary reverse mortgages would not expand the product into the needs based senior community but rather the mass affluent and affluent.
While many have been crying out for constriction on HECMs to hasten the return of proprietary reverse mortgages, what are the benefits? Yes, it will mean less reliance on government but will our market grow or shrink? Seeing the impact of proprietary reverse mortgages in prior years, it is hard to draw any conclusion other than a general shrinking of the market.
Does any really believe that a return of products similar to the Home Keeper will do any better than that product did? How will so called jumbo proprietary reverse mortgages fare in the current market? Will planners and Realtors jump for joy to have products which provide less than 35% LTVs even for 90 year olds?
I, for one, will hate to see HUD return to the minimum HECM lending limit of $417,000. It will not help the industry as a whole.
The mere fact that competition would be brought into the picture and that would be a definite positive move
The product would have to be completely re-designed I think in order for it to become a viable investment product for the investors.
Mr. Danner,
Certainly having competing products to offer is excellent but at what price? Rather than welcoming a $417,000 lending limit, we should be lobbying to hang onto the current $625,500 lending limit.
Completely redesigning proprietary reverse mortgages will require lower maximum gross proceeds factors and higher interest rates than we saw in 2006, 2007, and 2008. What the Great Housing Depression exposed is the vulnerability of the assumptions used in the past in determining risk in the housing market. Risk was much greater than anticipated before 2008.
One thing that remains true about proprietary reverse mortgages is like HECMs, the notes and loan agreements must be nonrecourse by law [15 USC 1602(bb)].
What I find most shocking is the attitude of HUD and lenders towards the formerly iconic HECM borrower who is responsible for the very growth of the product; the folks who struggle to cover the mortgage and make ends meet every month because their social security doesn’t go as far as it used to. The HECM was a “God-send” to these people
I actually heard more than one presenter at the recent NAMB meeting in Las Vegas refer to these people as the “low hanging fruit”!
The rules and policies employed by HUD and investors are responsible for 90% of the MI Trust Fund troubles. And they have “solved” those problems on the backs of the people who most need the program.
You want market competition? Taking 30% of the potential users of the table is certainly not the route to take.
Jon,
I agree that some of the campaigns about the new product are demeaning in calling our traditional base “low hanging fruit.” That is a shameful term to use but some hard hearted blowhards (I cannot write in this forum what I really think of them) in OUR industry have no trouble trampling on the self respect of and feelings of seniors with financial difficulties.
Yet, on the other hand, the HECM program had to change. Taxpayers have always underwritten all administrative and operational costs of the HECM program. So it is an outright lie to say that American taxpayers do not or at any point have not paid for or directly supported the HECM program as some industry leaders have tried to portray; the facts are we do so annually through the HUD portion of the annual budget. The only thing MIP is used for is reimbursing note losses and some costs during assignment. There is no other use of MIP so that the HECM portion of the MMI Fund can meet its portion of the current, rather lax, capital reserve requirements.
The HECM model has been working so poorly that during fiscal year 2010 HUD transferred $1.748 billion from other MMI Fund programs into the HECM portion of the MMI Fund and once again $535 million during fiscal 2011. Then at the end of September 2013 HUD took $1.685 billion directly from Treasury since the negative net position of the HECM portion of the MMI Fund overwhelmed all positive net positions of the other MMI programs. That is a total of almost $4 billion taken either from the Treasury and other MMI Fund programs to offset losses from HECMs which have only been endorsed since 9/30/2008. Yet even after all of the manipulations, the HECM portion of the MMI Fund net position is still $3.466 billion negative. Yet in order to meet its share of capital reserve requirement, the HECM portion of the net position of the MMI Fund should be positive by over $2 billion.
You are worried about a small segment of seniors who actually own homes. Imagine those seniors who do not!!! Their situation is generally much worse. Then there are all of those seniors who did not have sufficient equity to get a HECM even when there was a fixed rate Standard. So why should American taxpayers support seniors with homes more than they have always have by paying the annual administrative and operational costs of maintaining the HECM program? Absolutely not!!
Forgive me but all due respect, as a true cynic it seems your statements have more to do with your personal origination revenue losses than your concern about seniors who are really needs based. You are arguing for a portion of your former market, not needy seniors in general. So my personal sympathy for your cause is as cold as the weather at the South Pole. You seem to forget that we almost lost the entire HECM portion because in great part of your market segment and we are still in danger of losing it. So get off of your high horse, quit complaining, and help those you can.