[Housing Wire]
U.S. Senator Mike Braun wrote a letter to Ginnie Mae’s president asking for policy solutions to prevent a collapse of the secondary market HMBS program. [Listen for details]
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[Reverse Market Insight] Our monthly segment of RMI’s Market Minute.
[Journal Courier] Is downsizing worth it for retirees?
HSomRSan Clev
We seek comfort, familiarity, and routine. It’s natural. But recognizing when our patterns have become a rut, albeit a comfortable one or even reasonably productive is difficult. Meet the velvet rut.
Getting out is tough but worth it. You’ll likely find greater personal satisfaction, growing confidence, or increased income. Here are tips to get out of your own velvet rut.
Try these 5 strategies:Seek an outside perspective.
Identify what opportunities you’re giving up by doing the same thing each day, week, and year.
Remember your professional and personal aspirations you’ve put on the back burner while you’ve been in your comfort zone. Write them down.
What happens when someone is confronted with something they don’t know or understand? They’ll likely experience anxiety, apprehension, or even panic.
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Inflation is lower- well not really lower but the annual inflation rate has slowed. We covered that subject in our February 20th blog post ‘Don’t believe the CPI Lie’. To summarize, inflation gets baked into future prices and rarely reverses course. In essence, higher prices become the new baseline to which future inflation is added.
However inflation is much higher than what the government reports because the Consumer Price Index doesn’t account for higher minimum credit card payments or higher mortgage payments thanks to higher interest rates. This is especially difficult for older homeowners or retirees on a fixed income.
However, inflation is much higher than reported. Just because the GDP growth and low unemployment are shining on the economic forecast doesn’t mean that many consumers are under a dark cloud.
This contradiction can best be explained in a new working paper from the National Bureau of Economic Research entitled, “The Cost of Money is Part of the Cost of Living”. This paradox between the indicators and consumer sentiment may explain the increasing American pessimism about the economy.
The working paper reads in part, that consumer sentiment is “strongly correlated with borrowing costs and consumer credit supply”, more so than mere unemployment and annual inflation rates. The economy is booming, and everyone knows it – except for the American people says the Working Paper.
This should come as no surprise since home prices on average are 50% higher than they were when the pandemic began and the current average 30-year mortgage rate has increased threefold since 2021. Americans seeking to purchase a car may find qualifying for the loan difficult at best and certainly more expensive thanks to higher interest rates.
To put it simply, there’s a divergence between monthly CPI numbers and the American consumer experience.
Then there’s credit card debt. Older Americans carrying a credit card balance. On average cardholders with a balance are paying 5.25 percentage points more than they were before the Fed began its series of aggressive rate hikes. For example, a cardholder with a $10,000 balance only making minimum payments would be paying about $220 a month with a 16% interest rate. Today, that minimum payment would be $300 a month with the average 24% APR being charged by most card issuers today.
To put it simply, there’s a divergence between monthly CPI numbers and the American consumer experience, and older Americans are hurting.
That said, I have a closing thought for reverse mortgage originators watching.
The motivation behind how we approach potential borrowers is key to how receptive they are to potential solutions to their cash flow problems. Knowing the true cost of inflation think of yourself as a member of a search and rescue team. Searching for homeowners who need a solution to their financial predicament and when appropriate possibly rescuing them from unrelenting financial pressures in what should be their golden years.
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[Cleveland.com]
Unable to afford healthcare in retirement? Here are some options retirees should consider in addition to a reverse mortgage. [Listen for details]
Other Stories:
[Redfin] Home listings surge in biggest increase in 3 years: Asking prices drop.
[CNBC] No Rate Cut: The Fed holds rates steady after hot inflation report.
HSomRSan Clev
This week we discuss the importance of reverse mortgage originators having the focus of a search and rescue team. Search for those with a genuine need or financial pain that needs relief and solve the issue if possible.
The following is from an earlier publication authored by Amara Rose.
We spend a lot of time focusing on ways to enhance the reverse mortgage experience for mature adults. Just as crucial, however, is the care of the reverse mortgage professional. The more relaxed, healthy, and well-rested you are, the better you’ll be able to listen and the more thorough and specific the service you’ll provide.
Here are seven ways to improve your workplace, mood, and manner:
Will HECMs return to regional loan limits? This question arises from the Biden Administration’s 2025 Federal Budget and HUD’s 2025 Congressional justifications for their budget request. Today I’m going to walk you through the relevant changes including several notable proposed legislative changes to the Home Equity Conversion Mortgage program.
First, the proposal to allow HUD to establish regional loan limits. The Congressional justification states, “Currently, Home Equity Conversion Mortgages (HECMs) are subject to a single national HECM limit of $1,149,825 regardless of property location”. If approved this proposal would allow, but not require, HUD to establish regional loan limits aligned to the limits currently in place for the single-family Forward program.
The operative words are allow versus require which means the agency could potentially use their discretion to determine which areas would fall under a lower HECM limit. If Congress were to approve such legislative changes borrowers with higher-valued homes in Low Cost Areas would be most impacted. While HUD’s motives are unclear such limits if enacted would substantially reduce available HECM loan proceeds leaving a much larger equity cushion for homes that far exceed county limits.
For example, the single-family single-unit loan limit for traditional or forward FHA loans in a low-cost area is $498,257. That’s over $650,000 less than the current national HECM limit. Those originating in counties with lower average incomes and values would be most impacted.
But let’s look closer at some real-life examples. Using HUD’s FHA mortgage limit lookup tool we’ll look up the list of FHA limits in Kansas City, Missouri. As we can see every county in the state falls under the low-cost area limit of $498,257 for single units. If a regional limit were enacted, a 72-year-old reverse mortgage applicant in Kansas City Missouri with a home appraised at $750,000 at an expected rate of 7.25% would see their gross principal limit reduced from approximately $271,000 under today’s HECM limit regime down to $180,000- a $91,000 reduction in proceeds with only $498,257 of the home’s appraised $750,000 value considered.
Let’s try a state with a concentration of higher-valued homes, California. Here you’ll see both Low Cost Area and High Cost Area limits for single-unit properties by county or Metropolitan Statistical Area. Remember, these are not conforming limits but FHA limits. Some counties such as Los Angeles currently have a $1,149,825 maximum which is the same as our current national HECM limit. Keep in mind, that these loan limits are presently for FHA-insured forward mortgages.
Other regions such as Kern County and Bakersfield have homes that are typically worth far less than homes in larger metropolitan areas. Kern County’s 2024 FHA limit is $498,257 while areas such as San Jose, San Francisco, and Los Angeles all fall under the high-cost limit.
When considering these proposed legislative changes remember that similar requests to return to regional HECM limits, prohibiting HECM refinances, among others have been put forth but never passed by Congress.
Other notable proposed legislative changes to the HECM if approved by Congress include requiring HECM counseling for all refinance HECM transactions regardless if they received counseling within the last five years which is the current standard. Another proposal is to clarify the definition of a non-borrowing spouse as the NBS identified at the time of origination, but not to subsequent spouses. A removal of the cap on the number of HECMs that can be insured by FHA is also proposed. Lastly, since HUD has complied with the requirement that the HECM Actuarial Analysis examines the impact of HECM premiums, lower upfront premiums for refinances, and the existing national loan or HECM limit, the agency is asking for a conforming change to collect lower insurance premiums for HECM-to-HECM refinances. It’s unclear if that means the agency could eliminate or reduce the current upfront mortgage insurance premium credit allowed for refinances.
Of course, we will keep you updated should we see any developments regarding these proposed HECM legislative changes.
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Watch our exclusive interview with Paul Scheper- the man with the winning mindset in reverse mortgage lending! Here’s the lessons he learned in the last year in reverse.
