All Reverse Mortgage’s CEO Michael Branson penned another excellent column in Forbes- this time addressing how heirs and adult children can transfer a HECM property to the new owner and what paperwork is needed to ‘walk away’ from the home and the outstanding mortgage balance.
[READ FULL ARTICLE HERE]
Thanksgiving is the season to reflect upon the blessings bestowed upon us. In recent years continuing that tradition has been a challenge for reverse mortgage originators and lenders alike as we faced numerous policy changes that significantly reduced originations, marketing budgets, and ultimately the number of Home Equity Conversion Mortgages endorsed. However, this year we may have reason to celebrate.
As claims from federally-insured reverse mortgages surged the common response from HUD was to (1) reduce principal limit factors, or (2) adjust FHA insurance premiums. Often these were referred to as the ‘levers’ the agency pulled to reduce the risk of future insurance claims. Last September we saw a significant departure from this historical response with HUD choosing to forgo PLF reductions in favor of the Collateral Risk Assessment which requires a second appraisal when FHA’s automated valuation model reflects an inflated value. While not embraced by most industry participants it was less severe than the alternatives.
Now we anxiously await the actuarial report on the Federal Housing Administration’s Mutual Mortgage Insurance Fund- more specifically the HECM claims paid last year and the projected economic value of the program.
There are two reasons one could be cautiously optimistic.
First, the HECM’s economic performance is especially sensitive to present and projected interest rates. The Federal Reserve’s announcement of planned rate cuts could significantly improve the economic valuation and outlook for the HECM.
Second, the most exacting reforms recommended by HUD Secretary Ben Carson require Congressional approval. Those include the removal of the HECM from FHA’s insurance fund and the elimination of a national lending limit. With the House of Representatives being fully engrossed in the ongoing impeachment investigation and the meager 8 days the lower house is scheduled to work in November, legislative changes are unlikely in the near future.
All which leaves us with potential administrative changes, one in particular that Secretary Carson has touted repeatedly- the elimination of HECM-to-HECM refinances. To date, no mortgagee letter has been announced to effect such a change. However, should the pending actuarial report reveal a worsening economic forecast HUD could offer the refinance moratorium as proof of their earnestness in addressing financial risks. Until then many are anxious to see previously-announced improvements in how HUD’s contracted servicers dispose of HECM properties that are no longer occupied by a borrower due to death or relocation, and the verification that an eligible borrower or spouse remain in the property.
All things considered, we have much to be grateful for.
Rewind back ten or fifteen years ago and you would have never imagined that the reverse mortgage would look as it does today. No other mortgage loan has seen such a dramatic transformation of its core components than the Home Equity Conversion Mortgage. If the constant evolution of the HECM proves one thing it is the growing need for older homeowners to convert a portion of their home’s value into a source of cash flow.
While it’s uncertain if or when three key significant HECM changes will be implemented, what’s undeniable is that more senior households are facing a cash-crunch in retirement. Lawmakers have few viable solutions outside of home equity that could avoid financial insolvency for older homeowners- a fact that may have spared the HECM program the ax some lawmakers had been willing to swing.
HECM professionals can be thankful for one gift this year- no announced further reductions of lending percentages or principal limit factors. Despite HUD’s lack of detailed data for why each loan was terminated or placed into default, the agency is confident that previous reforms like the Financial Assessment and PLF reductions have helped slow losses to FHA’s insurance fund. However, such improvements remain difficult to measure until a larger statistical sample of recently-terminated loans is available and HUD’s aging technology is modernized. What is certain is that the housing crash of 2008 combined with full-draw fixed-rate loans sowed the seeds of HECM losses and FHA insurance claims that have afflicted the program in recent years.
Today the HECM has been transformed into a more robust program that has not only repaired most structural weaknesses but preempted many future risks. Who could have anticipated such a remarkable journey?
It’s a fact every salesperson and reverse mortgage professional must embrace- the vast majority of consumers inherently distrust salespeople. Will recent HECM changes help bolster the product’s legitimacy in the public eye? How will you approach the nuances of future policies and present them to homeowners?
The irony is that every major purchase from buying a home, a car or investing in your retirement entails working with a sales professional. The same applies to reverse mortgage professionals who approach a distrustful public. Further compounding this general skepticism are products whose unique features are highly advantageous leading many to say ‘if it sounds too good to be true, it probably is’. The good news is that recent changes to the federally-insured reverse mortgage may have helped us close the credibility gap.
It can be argued that recent changes to the Home Equity Conversion Mortgage may help improve the loan’s reception and close the credibility gap. The Financial Assessment raised the bar of entry excluding homeowners with a questionable credit history and late tax and insurance payments. Now Congress is looking to HECM loan servicers to modify their communication with borrowers before property taxes are due, and how delinquencies are handled. These reforms will help reduce foreclosures actions which are key to keeping and building public trust.
One witness representing the Government Accountability Ofice outlined the need for additional data collection from FHA, especially for foreclosure actions. This data could provide additional insight into how to further prevent foreclosures.
The good news is we have no major cutbacks in principal limit factors or changes in FHA insurance premium pricing. In addition, the outstanding HECM changes discussed in recent months are not guaranteed to be implemented. With that in mind, our best course of action is to continue reaching out to those who would benefit from a HECM being embued with the confidence that comes with Congress openly supporting the need for the program and acknowledging the impact of previous reforms.
“Summum Bonum”
“Summum Bonum”. The highest good was a phrase Rome’s famed orator Cicero was inclined to recite before his audiences. The greatest good or the sum of all that benefits your fellow man/woman. It’s a phase every HECM (reverse mortgage) professional should keep in mind when approaching every potential borrower.
The highest good is also embodied as the Stoic definition of virtue. The stoic tradition held that virtue is composed of wisdom, courage, temperance, and justice.
Applying these principles lets see how each could fit into our interactions as a reverse mortgage professional.
Wisdom
Courage
Temperance
Justice
It’s a fact every salesperson and reverse mortgage professional must embrace- the vast majority of consumers inherently distrust salespeople. Will recent HECM changes help bolster the product’s legitimacy in the public eye?
The irony is that every major purchase from buying a home, a car or investing in your retirement entails working with a sales professional. The same applies to reverse mortgage professionals who approach a distrustful public. Further compounding this general skepticism are products whose unique features are highly advantageous leading many to say ‘if it sounds too good to be true, it probably is’. The good news is that recent changes to the federally-insured reverse mortgage may have helped us close the credibility gap.
One problem that has garnered the most press and Congressional ire are HECM ‘foreclosures’. While the vast majority of HECM foreclosures are the result of the last borrower passing away thus terminating the loan, many could have been avoided with better communication and outreach. At least that’s the consensus among lawmakers- some who are pushing for increased scrutiny of the servicing process- more specifically how those who are overdue on their property taxes are managed. Are they sent a reminder before their property taxes are due? Are HECM borrowers who are delinquent on their property tax installment notified of any available local and state tax-deferral programs? Lawmakers are pushing for reforms to help avoid the fiasco that we call a ‘technical default’.
For a summary of last week’s Congressional hearing click here.
This Wednesday the Home Equity Conversion Mortgage program will face the white-hot glare of Congressional oversight and scrutiny. The House Committee on Financial Services will be reviewing the benefits and challenges of the Home Equity Conversion Mortgage- better known as the reverse mortgage.
A September 20th memorandum reveals the witnesses and primary subjects to be discussed. The document was released last Friday to members of the committee to help them prepare for the hearing.
Scheduled witnesses include:
After a brief summary of the HECM the memo details the development of the non-borrowing
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spouse policy- a reform that was championed by the committee’s chairwoman Maxine Waters. Also included are the numerous HECM reforms enacted since 2013- the year that the Reverse Mortgage Stabilization Act went into effect. Those reforms include first-year distribution limits, the financial assessment, the partial reimbursement of property charges paid by lenders on behalf of a borrower, and the collateral risk assessment which may require a second appraisal if the valuation exceeds HUD’s AVM (automated-valuation-model).
Issues related to servicing of HECM loans and foreclosures are likely to take center stage. “A recent USA Today article shed light on some of the problems that persist with foreclosures of reverse mortgages despite attempts by Congress and the HUD to improve the program” the memo notes.USA Today reported that a few unscrupulous lenders focused selling reverse mortgages specifically in poor neighborhoods- many which were predominantly black. Some of these homeowners were evicted. Just how many HECM borrowers were actually evicted from their home? That question reveals a significant weakness that still endures in HUD- a lack of data. “The article (USA Today) points out that while regulators claim actual
evictions of seniors are rare, there is no way to verify this claim because HUD does not collect this data, let alone report it.”
In its legislative note the memo references a previously drafted but not enacted bill- House Resolution 4160. The bill would have provided additional protections for non-borrowing spouses and required the immediate assignment of a HECM to HUD when the borrower has passed away and the eligible non-borrowing-spouse remains in the home.
It should be noted, the Congressional memorandum contains a significant error. It incorrectly states that “Since 2013, HUD has limited lump sum payments by reducing the amount that borrowers could draw during the first 12 months of the loan and increased mortgage insurance premiums if initial draws exceed 60 percent of the principal limit”. Mortgagee Letter 2017-12 repealed the two-tiered upfront FHA mortgage insurance premium structure and instead charges a flat upfront two-percent premium regardless of the money taken at closing.
The updated Housing Finance Reform Plan is ambitious in both its scope and impact on the housing industry and more particularly reverse mortgage industry participants. One of the proposed changes to the HECM (Home Equity Conversion Mortgage) is the removal of the national loan limit and a return to the county-by-county structure of yesteryear. Such a change requires Congressional approval.
[ FHA MORTGAGE LIMIT CALCULATOR ]
In 2019 HUD increased lending limits for most counties across the U.S. However, those unfamiliar with the localized caps may be surprised at local disparities. For instance, the offices of Reverse Focus are located in Shasta County- situated 2 hours south of the Oregon border. The current FHA loan limit for Shasta county is $314,827- a price few homes fall below. Yet just a short 20-minute drive south in Tehama county (where average home sale prices are considerably less) the loan limit is strangely the same- a scenario likely to be replayed throughout the markets of many HECM professionals.
All which brings us to the question of what if Congress removes the HECM program’s national limit? It would be expected that higher-valued homeowners on both coasts would stand to benefit the most under FHA’s high-cost areas cap under which we’ve functioned since the passage of the Housing & Economic Recovery Act (HERA) of 2008. It would also open a significant opportunity for the creation of private/proprietary reverse mortgages for those with homes that exceed the reduced county limits and fall below today’s cap of $726, 525.
While no PLF (principal limit factor) cuts have been announced, the repeal of the HECM’s national lending limit would cut much deeper for higher-valued homes in lower-cost MSAs.
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In a statement issued last week we learned that the Department of Housing and Urban Development (HUD) in cooperation with the Treasury Department presented President Donald Trump with their plans for reforming the Nation’s housing finance system and the Home Equity Conversion Mortgage program.
To date, no hard deadlines have been announced for implementation of any specific recommendations included in the report. Administrative reforms can be enacted by the Department of Housing and Urban Development. Legislative reforms require the approval of Congress which is more problematic and unpredictable.
While we have focused primarily on the Home Equity Conversion Mortgage, the report recommends reforms for several facets of housing finance that fall under the supervision of the Federal Housing Administration.
Here is a summary of the recommended changes to the Home Equity Conversion Mortgage program as part of housing finance reform.
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This month we wait for HUD to announce any upcoming changes to the Home Equity Conversion Mortgage. Let’s be honest. Previous changes were a mixed back of shock and awe, acceptance, and in some cases a collective sigh of relief.
The problem is anticipation can easily transform into anxiety. A wise man once told me, action defers anxiety. So while we wait for HUD’s next step in stewarding the reverse mortgage program, here are some things each HECM professional can do to not only keep their mind occupied, but position them for success in the coming year.
Here’s a list to keep your mind off impending changes.
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