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A recap of FHA’s and HUD’s media conference call, an examination of HECM risks, and how the value of the fund is calculated.
While most Americans look forward to retirement- many are finding their expectations caught between the need to finance their non-working years and the harsh realities of just how difficult it is to maintain their standard of living. While it’s been long known that retirees may struggle to qualify to purchase or refinance a home being on a fixed income, now many find themselves challenged to meet the requirements of the federally-insured reverse mortgage. Reductions in loan proceeds, Financial Assessment underwriting guidelines, and a reduced interest rate floor have caught many between a proverbial catch-22. Even those who have saved hundreds of thousands of dollars are unable to qualify for a traditional refinance or home equity line of credit being unable to meet the monthly income required. To qualify these individuals are faced with having to liquidate a portion of their investments that would otherwise continue to grow in value.
The good news is that necessity is the mother of invention… [download transcript]
Despite a year of setbacks for many, the 2018 National Reverse Mortgage Lenders Association Annual Meeting not only signaled a retooling of our industry but the course that lies before us.
[there is no video transcript for this week’s episode]
A wise person once said, “Words are free. It’s how you use them that may cost you.”At some point in our careers, most of us have been guilty misusing keywords when describing the features and benefits of the federally-insured reverse mortgage. I most certainly have done so, even on this show. As our collective gasp fades let ’s examine some of the common HECM vocabulary that is often used freely but is inaccurate. After all this helps each of us communicate clearly and accurately without eroding the trust of borrowers and other professionals.
It’s all about value. The most misused term in our industry is equity. After all, the formal and proper name for the federally-insured reverse mortgage is the Home Equity Conversion Mortgage. Seems straightforward enough but is it accurate?
*Please pardon our focus issue this week. The problem is being resolved.
In a few short days, the National Reverse Mortgage Lenders Association’s 2018 Annual Meeting and Expo will begin in sunny San Diego, California. What should you expect? Here’s a sneak peek of the upcoming attractions for this year’s annual pilgrimage of over 400 reverse mortgage professionals.
Changes:
What’s new? There are several notable changes this year, one being the start date. In years past conferences were in November and began on Monday and concluded Wednesday afternoon, however, this year we are moving forward one day beginning on Sunday, October 28th and concluding Tuesday the 30th.
As the HECM landscape becomes increasingly competitive branding is key. Two workshops will get you started off on the right foot- at 1:00 p.m. Grassroots Marketing presented by Jim McMinn with Finance of America will explore generating business from five unique lead sources. How to create a unique brand is presented at 2:00 p.m. with Darius Aram from ARAMCO Mortgage, Steven Sless- national reverse mortgage director for U.S. Mortgage Corp, and Norcom Mortgage’s VP of Reverse Mortgage Lending John Luddy. Many of you have come to follow John’s weekly sales tips videos here on HECMWorld each Thursday.
The most popular topics this year will focus on the new 2nd appraisal rule as part of the Collateral Risk Assessment and private or proprietary reverse mortgages. At 3:15 p.m. Sunday a panel led by Scott Norman of Finance of America will look at the implications of FHA’s new appraisal policy change enacted earlier this month. Monday morning at 10:00 a.m. New Product Options will feature a panel discussion on the latest private reverse mortgage products and alternate home equity loans…
In the conclusion of our interview with Dan, we discuss the following:
Few are asking an underlying question that will shape every effort to curb future losses or HECM claims against the Federal Housing Administration’s Mutual Mortgage Insurance Fund. That question is if the Home Equity Conversion Mortgage is a true mortgage loan or a social program. On its face many would answer- of course, it’s a mortgage loan. Mortgage loans by their very nature are designed to mitigate risk over time. The reverse mortgage being a collateralized loan solely dependent on the remaining equity at loan termination seeks to the reduce risk of losses by adjusting loan proceeds based on the age or life expectancy of the youngest borrower. But there are two other risk factors that may be eroding the economic value of the Home Equity Conversion Mortgage: the assumed annual 4% appreciation rate and deferred property maintenance
Two weeks ago on this show, we explored the premise that traditional mortgage lenders may provide substantial and much-needed growth for the reverse mortgage industry. An idea that flies in the face of what was once accepted as conventional wisdom by many who believed that ‘forward’ loan officers lacked the skill set needed for the lengthy and protracted process of originating being more accustomed to the transactional nature of a typical mortgage transaction. We thought it wise to reach out to someone who is an experienced hand in reverse mortgage lending who also has the unique position of working closely with traditional mortgage lenders. That would be Dan Harder, vice president at 1st Reverse Mortgage USA, a division of its traditional mortgage lending parent company Cherry Creek Mortgage.
You can breathe a sigh of relief. While no official statement has been made it appears that the reverse mortgage industry will not see additional changes to the HECM program this fall. Good news, since these changes typically entailed significant cutbacks in borrower benefits. A brief respite is appreciated considering the fact a recent Aspen Institute report shows Americans median retirement account balance is only $14,500. The need for older homeowners to tap home equity to fund retirement has never been greater.
Just one year ago reverse mortgage lenders were rocked with the news of a reduction of principal limit factors, higher upfront mortgage insurance premiums for low-utilization borrowers, and a lowering of the interest rate floor. Where does that leave us for the coming year and is there a reason for optimism?
First, let’s be honest. We didn’t get to historically low loan volumes overnight and we won’t bounce back in one or two years time. However, we should remember that we have a new FHA Commissioner who has been openly supportive of the reverse mortgage program and who are committed to finding the root causes of continuing HECM losses. “We are digging deep in the portfolio to find out of the problem is on the front end or the back end. My sense is that it’s more on the back end in terms of the losses we are experiencing”. He also added, “We need to find that tipping point. If you make further changes to [principal limit factors], pricing changes, what is the tipping point to where volume drops, and there are impacts to the [HECM mortgage-backed securities]?”, said FHA Commissioner Brian Montgomery.
Speaking of tipping points, Scott Norman, vice president of retail sales and government relations at Finance of America Reverse sees one.“So at some point…”
Indicators show we’ve reached the bottom but a more significant question has been largely ignored. Is the key to reverse mortgage industry’s long-term growth and recovery lie with traditional mortgage lenders? It’s a sincere question that begs examination considering there are tens of thousands of FHA-approved originators…
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