It’s Time to Hedge Against Inflation

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Using a Standby Reverse as an Inflation Hedge

reverse mortgage newsAfter several years of artificially low interest rates the Federal Reserve is beginning to raise interest rates – incrementally albeit. With home values still modestly appreciating across the country and interest rates beginning to rise, is now the window of opportunity for homeowners to hedge against inflation?

The Fed may tighten the money supply as fears of inflation begin to rise. In the wake of the Great Recession, many feared that prices for good would fall. However, that fear may be put to rest and replaced with another – inflation. A recent CNBC article states that a .6% jump in the Consumer Price Index (CPI) in January, pushed the annual inflation rate to a five-year high of 2.5 percent.

Rising prices will put more pressure on older homeowners on a fixed income as the cost of goods and services increase. Rising interest rates will increase the cost of borrowing and also reduce the cash benefit that reverse mortgage borrowers can obtain. In this uncertain economic landscape some homeowners could benefit by leveraging a HECM line of credit as a hedge against inflation, states a recent article in the Wall Street Journal. Older homeowners may want to revisit the ‘wait and see’ approach to getting a reverse mortgage, and rather choose to secure the loan at a younger age.

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A Surprise HECM Foreclosure?

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Possible Remedies to Prevent HECM Defaults

reverse mortgage newsThe reverse mortgage industry could lament it’s treatment in the media, in the words of Rodney Dangerfield, “that’s the story of my life…no respect”.

NBC4’s consumer reporter dramatically recounts the tale of a HECM borrower who narrowly avoided foreclosure. The borrower’s power of attorney also serves as her live-in caregiver. The caregiver claims she was surprised by a foreclosure notice received in the mail and attempted to pay the insurance premium but the payment was returned because the auction was already scheduled. *UPDATE* I repeatedly pressed an employee with NBC4’s Consumer Union if the homeowner’s insurance company had in fact sent billing notices to the homeowner. His reply was “They acknowledged that they sent bills not in line with an arranged payment plan which is why the error occurred.”

Reverse mortgage borrowers must pay their property taxes and homeowner’s insurance or risk foreclosure. The same requirement applies to traditional mortgage borrowers.For several years reverse mortgage documents have included a clear statement informing borrowers of these obligations and the risks of non-payment. While the media jumps to expose the plight of seniors being. Here are some other points to consider for HECM borrower’s facing foreclosure for non-payment of property charges.

One advantage traditional mortgage borrowers have is the automatic payment of property taxes and insurance from their escrow account. While such an arrangement is practical for those making monthly principal and interest payments it is highly problematic for HECM borrowers facing a sizable reduction in available funds if a lump sum Lifetime Expectancy Set Aside (LESA) is required. Perhaps a better solution for reverse mortgage borrowers would be the implementation of monthly auto-drafts for insurance and an auto-draft into a HECM escrow account to fund property tax payments every six months. If feasible, such an arrangement could avoid the onerous lump sums required for a LESA.

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Executive Orders: The Impact on Our Industry

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A Pause for HECM Changes?

pres-penExecutive orders. This practice of exercising executive authority has become increasingly frequent and controversial in recent presidential administrations. In 2013 HUD was granted the authority to in effect, issue ‘executive orders’ under FHA’s expanded powers. President Trump has promised to cut federal regulations dramatically. Will the administration’s executive orders curb the rule-making authority of FHA?

The HECM Stabilization Act of 2013 granted FHA the Congressional authority to enact reforms to the Home Equity Conversion Mortgage program as needed to ensure the program’s longevity.

The Trump administration’s recent executive order mandates that all agencies to keep additional regulatory costs at zero, unless required by law. Under a regulation-cutting administration HUD may find itself hamstrung in enacting their recent set of HECM rules which were due to be enacted on September 19th this year. These additional rules included the authority to reduce first year distributions from 50%, a 95% property acquisition threshold, and an 11% cap on closing costs for purchase transactions.

Reverse mortgage lenders may soon get a…

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The Trump Administration & Reverse Mortgages

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How will the Trump administration approach reverse mortgages?

reverse mortgage newsDoes one of the first decisions made by the Trump administration foreshadow the future of the reverse mortgage program? The administration’s decision to rescind a recent FHA mortgage insurance premium reduction was swift- within one hour after President Donald Trump took the oath of office. How will a business-minded administration approach the Home Equity Conversion Mortgage program?

Mortgage lenders should brace themselves for change. The Trump administration team made it clear they intend to dismantle the Dodd-Frank Act, a complex set of banking and lending regulations that have been criticized for their complexity and hurdles for middle class borrowers in obtaining credit. In addition the Consumer Financial Protection Bureau faces a substantial makeover. While both parties agree that consumer protections are needed, they disagree as to how that goal should be achieved.

Does this mean the Trump administration will be anti-reverse mortgage? By no means. However the ambition to reduce spending and waste should deliberate on the unintended consequences inherent in policy changes, specifically for today’s aging homeowners. With most retirees having less than $50,000 in savings the need to finance one’s longevity using their home has never been greater. Housing has become the lynchpin upon which the majority of American’s wealth is built.

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NEW HECM Rules Announced

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HUD Announced New Finalized HECM Rules for 2017

reverse mortgage newsHUD announced their finalized rules enacting several policy changes to the Home Equity Conversion Mortgage (HECM) program which will go into effect later this year. What do these changes hold in store for interest rate caps, disclosure requirements, and new loan assignment guidelines and how will the final rules change the face of reverse mortgage originations? Welcome. This, is the Industry Leader Update. I’m Shannon Hicks.. This episode is brought to you by ePath Digital, providing real-time leads for today’s reverse mortgage professional.

After much anticipation and speculation, HUD announced their finalized rule changes for the Home Equity Conversion Mortgage. The rule changes were first proposed and opened to public comment last May. The rules could be seen as a continuation of the agency’s mission to solidify the reverse mortgage program under the Reverse Mortgage Stabilization Act of 2013 which gave HUD expanded authority to quickly enact additional rule changes as they saw fit. The new rules will go into effect September 19, 2017.

When it comes to reverse mortgage originations, loan officers and lenders will be required to…

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Are More HECM Reforms Needed?

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Are More Rule Changes Needed or Does Data Need to Be Reexamined?

The new year is upon us and we can leave 2016 in the rear view mirror, with the exception of HUD’s pending reverse mortgage rules. Are additional HECM reforms truly needed to strengthen the HECM program?

loading-iconIn the wake of the election and the new year, lingering HECM program changes can be easily forgotten. Last May FHA introduced a series of new rules to strengthen the Home Equity Conversion Mortgage program. The changes included required HECM counseling prior to signing s mortgage contract, disclosure of all HECM features and options, and most problematically, a 5% lifetime cap on the adjustable rate HECM with a 1% annual interest rate cap. Numerous industry participants and the National Reverse Mortgage Lenders Association submitted inputs to the agency in the Federal Register. Several months have passed and yet there is no word if these substantial product changes will be enacted. Presently the proposed rule changes are in the final rule stage prior to regulatory review.

Many industry participants have voiced their concern that these changes will negatively impact the HECM program. Perhaps a more relevant point is the question if such changes are even necessary. Is the HECM program’s economic outlook as bleak as HUD’s recent report to Congress suggests?

HUD’s most recent report to Congress shows the HECM portion of FHA’s portfolio is valued at a negative $7.7 billion dollars. That represents a $13 billion dollar swing to the negative dropping from the previous year’s valuation of a positive $6.8 billion. Much of the impact can be attributed to slowing home appreciation upon which much of the economic modeling depends upon.

However, what is somewhat problematic are reports that HUD’s internal assumption are based on 100% of the available principal limit is used at the beginning of the loan. This assumed front-loaded loan balance is then factored based on future interest rates and the borrower’s age. This mathematical approach drastically increase the negative amortization of the HECM loan and the assumed ending loan balance…

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Fake Reverse Mortgage ‘News’

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Real estate columnist highlights the need to watch for ‘fake news’

ILU-FI.001Any mortgage or financial product requires good faith on the part of the company and its representative when working with a potential client. Full disclosure and honesty are non-negotiable when working with homeowners. In addition, every reverse mortgage professional should be fully-informed of the common objections and misconceptions about the HECM.

Maureen Hughes is a real estate professional with Keller Williams in West Chester, Pennsylvania. Her recent column entitled “4 reasons to reconsider a reverse mortgage’ warrants further examination. Are the four concerns or risks she outlines fair and accurate? As Hughes states “…there are some serious issues to be aware of and discuss before you jump on the reverse mortgage bandwagon.”

Troublesome Terms & Interest Rates

Reverse mortgages continue to be maligned as ‘high interest rate’ loans. Such inaccurate statements only serve to strike fear in the hearts of older homeowners and unfairly associate HECMs with predatory lending. Nothing could be further from the truth. Hughes states, “Reverse mortgage interest rates and loan fees in general tend to be higher than standard home loans. Often, reverse mortgages are not able to be renegotiated, so being sure this type of mortgage is the absolute best choice for you and your family.” To be fair, reverse mortgage interest rates could be marginally …

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The Myth of Reverse Mortgage Foreclosures?

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Guttentag Questions the Definition of a HECM ‘Foreclosure’

“Whoever controls the language controls the debate”. The purported ‘epidemic’ of reverse mortgage foreclosures has long been a staple for major media outlets to attack the reverse mortgage as a risky and dangerous loan. Closer to home, the incidence of HECM foreclosures has been often cited as one justification for increased restrictions, product reengineering, and the financial assessment underwriting guidelines.

Jack Guttentag -"The Mortgage Professor"
Jack Guttentag -“The Mortgage Professor”

The media loves a good drama. Find a villain and add some emotional tension and you have a headline that is click-worthy. Such a scenario played out in a recent article on Bloomberg.com entitled “Mnuchin’s Reverse Mortgage Woes Blemish Record of Treasury Pick.” Jack Guttentag, aka the Mortgage Professor, was intrigued. The headline is timely since Steven Mnuchin was recently announced as president-elect Trump’s pick for Treasury Secretary. Mnuchin’s blemish in the article centers on his acquiring of IndyMac Bank in 2009 and with it Financial Freedom. Now we can see the ‘reverse mortgage’ connection that Bloomberg hints may point to alleged unethical business practices. Financial Freedom “has carried out 16,220 foreclosures since 2009, or about 39 percent of the country’s reverse mortgage foreclosures, according to HUD data obtained by the California Reinvestment Coalition…” Guttentag was skeptical that one lender could account for such a large percentage of HECM foreclosures.

What ‘foreclosure’ really means

Skeptical, Guttentag researched for the total number of HECM foreclosures since 2009. He uncovered a report provided by the agency to a consumer group in response to a freedom of information request. Since April 2009, there have been 41,237 reverse mortgage foreclosures accounting for roughly 4% of all…

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2016: The Year in Review

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Looking back at the stories that shaped our industry

2016 brought several changes to the reverse mortgage industry. Before launching head-first into the new year we should look back at the stories that shaped the Home Equity Conversion Mortgage to prepare for 2017.

February brought us…

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