A new presidential administration, a new secretary for HUD, the likelihood of rising interest rates, and a potential curbing of the CFPB’s powers. Who ever said the new year would be boring?
Continue readingThe Trump Effect: A New Era for the HECM?
HECM Terminology is Confusing at Best
Our Name & Terminology May Be Turning Away Potential Borrowers
“Words have meaning and names have power”, said Spanish author Miguel de Cervantes. Perhaps this is something the reverse mortgage industry should strongly consider. The 27-year-old Home Equity Conversion Mortgage program is struggling to expand its reach in an ever-growing marketplace. Is our reverse mortgage terminology confusing older homeowners? Does our name need to be rebranded?
For many years I have chafed at the term ‘reverse mortgage’ opting instead for Home Equity Conversion Mortgage, considering widespread product confusion and lingering misgivings born from negative media stories. Even better perhaps we should adopt “Equity Release Mortgage” as our new flagship name as our counterparts in the U.K. and Australia have branded a similar offering. During the NRMLA annual meeting in Chicago, some members argued that the name “reverse mortgage” carries a negative connotation, in the sense that a person is moving “backward”. Create your own user feedback survey
Beyond the argument that our product needs a new name, is the confusing and often contradictory terminology in the HECM itself. The principal limit, while known within our industry, is completely foreign and alien term for older homeowners who have only been exposed to standard mortgage terminology in their working years. Some industry members argue that ‘available proceeds’ is more descriptive. Maximum Claim Amount, or MCA, is another example of industry jargon thrust upon HECM borrowers. Instead, some suggest renaming this to the ‘FHA Lending Limit’. The fact is that mortgage applications are loaded with an alphabet soup of acronyms. With HECM loans layering another set of loan terms, confusion is sure to follow, not to mention increased consumer uncertainty…
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The HECM May Have to Move Out of FHA’s MMI Fund
Will the HECM move back to the General Insurance Fund?
While the overall FHA MMI (Mutual Mortgage Insurance) Fund is showing positive signs of recovery, the HECM portion of the fund has been much more volitaile than the traditional mortgage segment. With the latest actuarial report showing a negative economic value some are calling for the HECM to be separated into its own fund…
FHA Fund Update Reveals Longterm Projected Losses
FHA’s Recent Report Paints a Sobering Picture
While it may have been unwelcome news, the recent announcement of FHA losses for the HECM portfolio should come as no surprise as loans terminate from the bygone era of a more generous HECM program. FHA’s Annual Report to Congress, published November 15th, coincided with last week’s gathering of industry professionals in Chicago at the National Reverse Mortgage Lenders Association’s annual meeting.
As the Federal Housing Administration began substantial reforms to reduce the risk of the HECM program, many industry participants were critical of the changes which restricted access to the program with lowered lending ratios, fist-year distributions limits, and financial assessment underwriting guidelines. However, looking at the cohort of HECM loans in 2009 through 2010, it becomes readily apparent why the agency took such rigorous measures to change the underlying assumptions of the reverse mortgage as the report shows the forward mortgage portfolio is shows an economic value of $35 billion, while the HECM portfolio is a liability with its economic valuation of a negative $7.7 billion. The actuarial review, upon which the report is based upon…
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Looking for more reverse mortgage news, commentary, and technology? Visit ReverseFocus.com today
Are you prepared?
Tips to prepare for the NRMLA Annual Meeting in Chicago
Any business trip warrants considerable attention to preparation. If you will be attending the National Reverse Mortgage Lenders Association annual meeting in Chicago, here are some tips to help you get the most from the conference.
Where Others Fail, The HECM Delivers
As other lending options fail, the HECM delivers solutions
A banker lends you his umbrella when it is sunny and wants it back when it rains. So says the well known joke about the sad state of consumer lending.
“After the recession, our clients called, telling us that their banks had canceled their lines of credit, even for people who had good credit. That’s the time when you need it most.” These are the words of John Salter, notable financial expert and principal at Evensky & Katz as quoted in a recent CNBC article “Putting it in reverse, advisors warm to reverse mortgage”.
As unprepared American retirees face dwindling options to access credit or home equity, the reverse mortgage continues to deliver. Hard learned lessons are usually embraced as a cautionary tale. Unfortunately, the American consumer has an exceedingly short memory when it comes to the lessons taught by the 2008 financial crises. Few understand or remember the significance of artificially low interest rates, the false security of rising home values, HELOC payment resets and the fallout of rising interest rates. Fortunately, older homeowners have some remaining viable options to access cash in their non-working years. One option remains while many march on, unaware of the potential financial time-bombs that lie ahead. The Home Equity Conversion Mortgage.
Every senior homeowner should take a hard look at their financial state…
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Looking for more reverse mortgage news, commentary, and technology? Visit ReverseFocus.com today
The Reinvention of the Reverse Mortgage
HECM Product Changes Spurred Market Shift & Innovation
Necessity is the mother of invention. For the reverse mortgage industry one could say that necessity has pushed us into reinventing the image and application of the Home Equity Conversion Mortgage.
One could argue that the first 15 years of the HECM were simple. A straightforward product, few complications, and generous qualification guidelines for seniors seeking access to much-needed funds in their non-working years. Without reciting the litany of product changes and regulatory overlays it is safe so say that today’s reverse mortgage has been slowly transformed into a loan that is expanding its reach while facing a shrinking pool of eligible borrowers…
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Looking for more reverse mortgage news, commentary, and technology? Visit ReverseFocus.com today
An Argument for HECMs as a Last Resort
Financial Columnist Argues When a HECM Should be a ‘Last Resort’
For decades the federally-insured reverse mortgage, or HECM, has been generally viewed as a ‘loan of last resort’ by both the media and the financial planning community at large. In recent years, our industry has made notable inroads with financial professionals who have begun to embrace the strategic use of a reverse mortgage in retirement income planning. However, one financial columnist says there are many situations in which the using the reverse mortgage as a last resort is the best resort.
Dirk Cotton’s blog “The Retirement Cafe” is a blog which is self-described as “retirement planning for the unwealthy”. In his most recent column “Reverse Mortgages: When the Last Resort is the Best Resort”, Cotton provides an interesting counter-argument to those who have widely embraced the strategic use of a HECM sooner than later stating, “I believe there are many retirement scenarios in which spending home equity as the last resort is the best resort”. His position stands in stark contrast to the position widely embraced within our industry as first published in the paper “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income (2012)”, by Barry Sachs and Stephen Sachs.
Download a transcript of this episode here.
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Examining the Underserved HECM Market
MIT study reveals more detail about potential HECM market
We’ve heard for years that the Home Equity Conversion Mortgage has only been utilized by 2% of retired homeowners. We also know that reverse mortgage volume has fallen dramatically from its historic high endorsement volume of 114,000 units in 2009 to 48,900 units for the fiscal year 2016. What is our true market potential of not only age eligible homeowners but those who could potentially qualify.A recent study released by M.I.T. this summer provides a clearer picture of our missing market potential.
This summer, MIT released a 92-page study to estimate the percentage of retired households with sufficient home equity that could best use a reverse mortgage. The study analyzed 3,730 retired households with…
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Looking for more reverse mortgage news, commentary, and technology? Visit ReverseFocus.com today
An Identity Crisis for the HECM?
The HECMs identity, purpose, and true intent
Anyway you slice it, the reverse mortgage industry is struggling to get back on a positive trajectory. Not surprising considering the glut of regulatory changes and product revisions we have absorbed in recent years. The silver lining is the immense market potential that lies ahead. The uncertainty lies in the question, what will the HECM program look like in the future?
Beyond regulations, product changes and product restriction we face another quandary, a crisis of identity and purpose. Much of the HECM’s identity crisis can be attributed to our traditional needs-based borrower of yesteryear…
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Looking for more reverse mortgage news, commentary, and technology? Visit ReverseFocus.com today
