Reverse Mortgage News Roundup

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This Week’s Top Reverse Mortgage Stories

1- CFPB Complaints on the Rise- The CFPB has been busy collecting consumer complaints. The Consumer Financial Protection Bureau reports an increase of 172% increase in reverse mortgage-related complaints since 2012. One could guess that much of this is due to increased consumer awareness of whom to report grievances to and how to do so. While the data shows a legitimate spike in HECM-related complaints, questions remain such as differentiating between mere questions and complaints that warrant with 80% not requiring any action. Industry trade groups such as the Mortgage Bankers Association, feel this serves only to mislead the consumers the CFPB is charged with protecting.

2- Stupid? A recent CNBC article said reverse mortgages aren’t for the ’stupid’. CNBC reporter Andrew Osterland opens his column saying “you don’t have to be old, poor, and stupid to get a reverse mortgage’. Perhaps Osterland is implying some ‘stupid’ homeowners fell prey to what he says tarnished the industry’s reputation in the first place- ‘cheesy television ads, unscrupulous brokers, and unwise borrower behavior’. He quotes University Professor and industry advocate Dr John Salter who says ‘The late-night ads are a really bad idea for the industry’. Overall the piece is a positive one citing the merits of the HECM when used wisely.

3-Government Shutdown? If there’s one certainty in life it is the political infighting in Washington, D.C., this time it could lead to a government shutdown. By the time you watch this episode, we should know if Republicans and Democrats were able to negotiate a stop-gap budget that President Trump would sign. If there is an extended shut down HECM endorsements would stop altogether, which would lead to a significant backlog. “FHA does not have the authority to insure additional HECMs during this period due to the statutory cap limiting the number of HECMs under the HECM program,” said a guidance piece issued by HUD during the last shutdown in 2013.

4- 2nd Annual Reverse Mortgage Education Week-Last week was Reverse Mortgage education week, during which the National Reverse Mortgage Lenders Association focuses on educating older adults, financial professionals, real estate agents, and family members about the Home Equity Conversion Mortgage. Topics included tax and insurance defaults, avoiding scams, and the repayment process.

Some See the HECM Financial Assessment As A Benefit

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Two Years Later the Financial Assessment Receives Mixed Reviews

The implementation of the HECM Financial Assessment was met with mixed reviews when it was launched in April 2015. While many industry professionals have remained critical of the new underwriting guidelines some welcome the assessment as see it as a net benefit.

reverse mortgage news‘Every loan is a problem loan’

The seismic shift of the Financial Assessment’s restrictive and complex underwriting guidelines have many feeling that the reverse mortgage underwriting has now matched or surpassed traditional mortgage underwriting guidelines. Bill Smith with Reverse Mortgage west told Reverse Mortgage Daily, “Tighter regulations have resulted in tougher underwriting standards that have made most HECM loans far less routine. Complaints from my colleagues that ‘every loan is a problem loan’ are much too frequent and clearly not what used to be when I started.” Not only is the sales cycle prolonged but the assessment has limited the number of qualified applicants carving out many who would have been previously eligible for the loan.

The Paper Chase

The complexities of the reverse mortgage are difficult enough for many to communicate to a borrower. Now many find themselves spending considerable time gathering the required documentation needed for the assessment which reduces their time spent originating loans…

 

The HECM’s State of Affairs

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Irrelevant HECM endorsements and recent developments

The Irrelevancy of Historical Volumes

A sense of frustration can set in for those expecting rapid expansion of loan volume back to our pre-recession levels.   After several years of rapid expansion culminating in 2009’s record endorsement tally of 114,629 loans, last year’s endorsements were a sum total of 48,000 endorsements. Such comparisons are suspect for a number of reasons- a simpler product offering, rapid home appreciation, generous underwriting guidelines, increased loan complexity, lending ratio reductions, and the post-recession and housing crash.

Considering the headwinds the HECM has endured we can claim both a modicum of success and a measured optimism for future market expansion. However, fixating on the apple and oranges comparison of historic volumes ignores larger macroeconomic forces and serves only to distract us from more pressing matters.
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Too good to be true?

One hurdle to increased consumer adoption of the HECM is the fear that if it sounds too good to be true, it probably is. The ability to leverage an illiquid asset and transform it into a potential source of predictable cash-flow is an attractive yet counterintuitive proposition for many Americans wanting to age in place. Sweetening the deal is the fact that the HECM’s unused available funds, or principal limit, grows each year based on the current interest rate plus the MIP. Caution must be exercised when making claims as to just how large

 

HECM Changes Coming This Fall

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change-pillDespite executive order, more HECM Changes coming this fall

One would think our industry may catch it’s collective breath from the rapid nonstop pace of new rules and regulations for the Home Equity Conversion Mortgage. Such hopes were bolstered with the February announcement of President Trump’s Executive Order curbing federal regulations. However, it appears that HUD’s final rules will in fact be implemented this fall. What do such changes hold in store for the reverse mortgage industry?

Perhaps it is fitting that HUD’s final HECM rule will arrive just days before the fall season officially begins on September 19th. The rollout will come in three phases: self-implementation, changes to the Single Family Housing Policy Handbook, and future mortgagee letters. During the National Reverse Mortgage Lenders Association meeting last week in New York City, the association’s president and CEO Peter Bell expressed their comfort on the direction of the coming rules changes.

Some additional changes are welcomed by industry participants. These include ….

Lack of Financial Literacy Challenges HECM Acceptance

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Financial illiteracy challenges acceptance of a counter-intuitive mortgagereverse mortgage news

If there is one subject that cries for remedial instruction it’s financial literacy. Fortune.com found that nearly two thirds of Americans are in effect financially illiterate, unable to grasp basic financial concepts. As the Home Equity Conversion Mortgage has become increasingly complex in recent years, the knowledge gap has widened.

Before attempting to explain how a reverse mortgage works, we should perhaps conduct a quick assessment of the prospective borrower’s grasp of financial concepts. After all, who would want to jump from algebra straight to trigonometry? In reality, filling the role of a financial counselor is often impractical, nevertheless we should be mindful of many homeowner’s ability to absorb the information we are presenting.

Consider one question: if you take out a $1,000 loan that has a 20% interest rate, how much will you owe in one year in interest? Nearly two thirds could not answer correctly. The overall rate of American financial literacy findings come from the National Capacity Study by the FINRA Foundation.The very nature of reverse mortgages is counter-intuitive to the mortgages most have known and paid for most of their working years. That familiarity is fraught with myths and misconceptions. Take for example ….

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The Sky Is Not Falling with Interest Rate Hikes

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Interest rate hikes are here. How to cope?

reverse mortgageThe Federal Reserve has already increased the benchmark federal funds rate and has telegraphed their intention for additional hikes this year. Do reverse mortgage lenders and borrowers need to worry?

Be careful what you wish for. Monetary policy dictates that as the economy improves, interest rates are adjusted to more normative levels in the efforts to curb inflation and prevent market bubbles triggered by cheap money.

Reverse mortgage borrowers reluctant to pay higher closing costs were often won over with lender pricing concessions. IBIS’s weekly rate updates show the gradual erosion of lender margins, eroding the ability of HECM lenders to reduce origination fees or to cut other costs….
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Compliance: CFPB Levies Penalties on HECM Lenders

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Recent CFPB actions highlight the importance of compliant advertising and sales practices

reverse mortgage newsSince the founding of the CFPB (Consumer Financial Protection Bureau) in 2011, lenders have found themselves navigating the ever-changing waters of regulatory compliance. Reverse mortgage lenders  have recently felt the impact of the agency with three lenders paying substantial penalties levied. Today more than ever before, compliance is not a merely a burden, it is imperative for the well being of lenders and our industry as a whole. Breaking the Bad News: It’s not the kind of news one wants to break during a corporate earnings call. Walter Investment Corporation revealed two subpoenas related to their former origination unit: Reverse Mortgage Solutions. The subpoenas focused on the former HECM lender’s origination, underwriting and appraisal practices. Even more troubling was the announcement that… Download the video transcript here.

Big Changes Ahead in 2017

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3 reasons why you should expect big changes in 2017

The political landscape changed with a sudden seismic shift felt across the world. Domestically the impacts of a new populist, small government philosophy may manifest themselves in a variety of ways that will impact reverse mortgage lending this year.

Slashing Domestic Spending:

The Trump administration is contemplating substantial cuts in excess of $6 billion dollars from HUD’s budget, according to documents obtained by the Washington Post. While alarming to some, would such cuts, if realized, substantially impact the Home Equity Conversion Mortgage? The short answer is no as most are speculated to be directed at housing initiatives such as Section 8, community housing projects and assistance programs for elderly low income Americans. Some industry participants however, wonder if continued budget subsidies for the HECM program would place the program in the crosshairs of the federal government’s efforts to reign in domestic spending.

reverse mortgage newsTrump vs. The Fed:

Will Trump regret his comments about the Fed? Throughout his presidential campaign, Donald Trump criticized the Federal Reserve and it’s chair Janet Yellen, of maintaining artificially low interest rates to help Hillary Clinton. In December the Fed raised interest rates on quarter of a percent, the second rate increase since June 2006. Central banks have been reluctant to raise interest rates in the wake of the 2008 financial crash, and home prices have consequently been on a tear. Today, the Fed is projecting three rate hikes this year alone. The impact would be felt by

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Shutting Down: Why many reject the HECM

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The hurdles to increased acceptance are complex

Today there is an estimated $4.4 trillion in home equity for those 65 and older, many who are woefully unprepared for retirement. As HECM endorsements continue to underperform years past, many ask why more eligible homeowners do not get a reverse mortgage.

A recent report from the Urban Institute reveals some of the underlying causes of homeowners reluctance to get a reverse mortgage despite the potential benefits. For years our industry has generally accepted the statistic that a mere 2% of eligible homeowners. However, last summer a MIT study provided a more detailed summary. Analyzing over 3,700 retired households with a loan to value ratios less and 40%, they found 55% would be eligible for a HECM. The bottom line, 12-14% of all retired households in the U.S. are eligible for the reverse mortgage.

The DC think tank, the Urban Institute, published a report entitled ‘Seniors’ Access to Home Equity’, which determined that adults 65 and older control $4.4 trillion of the total $11 trillion held by American homeowners. With nearly half of households in this group having zero retirement savings why are more not seizing the opportunity to fund their retirement years using a reverse mortgage? The primary factors, the report shows, are

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The Origins of the Biggest Reverse Mortgage Myth

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Here’s where one of the biggest myths came from

reverse mortgage newsThe best lies have an element of truth in them. Perhaps the truth serves as the sugar coating on a poison pill that has infected the minds of many older homeowners who fear they would sign over ownership of their home if they chose to get a reverse mortgage. Where did such an urban legend begin? Does it have any historical merit?

The best place to begin our journey in seeking the truth is online. Here are several articles we found. The majority of the confusion is rooted in early versions of proprietary, or privately issued, reverse mortgage products. Many of the loans had shared appreciation clauses.

Another factor adding to the confusion of home ownership with a federally-insured reverse mortgage (or HECM) is the Deed in lieu of foreclosure. In its simplest definition, a deed in lieu of foreclosure does in fact sign over property ownership to another party. In the case of a HECM, a deed in lieu of foreclosure is typically used by the surviving heirs of a HECM borrower who find their parent’s reverse mortgage loan balance exceeds the home’s present value. This instrument signs over the home and property back to the lender avoiding a foreclosure proceeding. The deed in lieu in foreclosure represents the conclusion of the HECM loan and more importantly the importance of the loan’s non-recourse clause, which states that no other assets other than the home can be used to secure the loan. Heirs unfamiliar with this unique transaction could easily be left with the impression that their parents had signed over their home and thus add credibility to the myth.

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