As the final days of summer pass the collective tension of reverse mortgage professionals increases in anticipation of what changes HUD will make to the federally-insured reverse mortgage program. As August or September bring us the changes for the following fiscal year that begins in October we asked you for your top three guesses…
Dan Hultquist of Finance of America Reverse returns for another exclusive interview; this time discussing how a record low-interest-rate environment do erase most of the impact of the October 2017 PLF reduction and much more.
If you stick around long enough in the mortgage business you’ll eventually see trends repeat themselves. No, we’re not talking about your bell-bottom jeans from 1978, but rather a return of the concept of equity sharing and fractional real estate. Twenty years ago when most were unaware of what a reverse mortgage even was, it wasn’t uncommon to find lower-income seniors with advertisements for equity-sharing or even such an arrangement in place.
One player in this emerging market that has garnered media interest is SmartRE- a blockchain-based platform that allows homeowners to sell a portion of their home equity to private buyers via secure online contracts. Their slogan is ingenious: Cash In & Stay In. One of their videos pitches SmartRE as the smart alternative to HELOCs and yes, even reverse mortgages.
A stable real estate market with modest appreciation is fertile ground for product innovation and investment. New players…
What is presently shaping reverse mortgage production today, and what will influence our future?
First is the ‘feeder’ of all reverse mortgage endorsements. Before any federally-insured reverse mortgage is underwritten, has funds disbursed or is ultimately insured or ‘endorsed’ it begins as a case number- the identifier attached to every submitted HECM application. While most closely follow our monthly Top 100 lenders report, many are not looking at the leading indicator of future endorsement volume- Case Number Assignments– or perhaps a better term would be ‘reported applications’.
Case numbers aside the largest factor to influence future loan volumes is what HUD says or doesn’t say in the coming months. Traditionally August or September have heralded upcoming changes for the following federal fiscal year which begins each October. Will we see another round of cutbacks to the HECM’s principal limit factors, or another layer of loan requirements? While recent comments from FHA Commissioner Brian Montgomery show confidence in the improving financial health of the HECM program, there’s no denying the continued drain from previous HECM loans on the FHA’s insurance fund.
FHA’s 2nd Quarter report to Congress on the Mutual Mortgage Insurance Fund shows 2018 HECM claim payouts are on track to exceed 2017 by over
If there’s one fault most salespeople share it is this- a lack of follow up with the borrower after the sale. While many may contact the homeowner after the loan funds, or call to explain the first monthly loan statement- few stay in regular contact with the borrower. A lack of communication or no longer being easily accessible is fertile ground for misunderstanding, frustration, and yes even litigation. Consider for a moment the perception of an elderly borrower who may be panicked over some innocuous notice, or even worse a notice to remedy a delinquent property tax installment. Like most, they cannot easily locate their loan paperwork, just as most 30-year-olds cannot quickly locate their closing documents or even the folder they received from their mortgage broker. An older homeowner is fraught with worry, their adult children may be angry, and most importantly- a situation that may have been quickly remedied gets out of control.
The infamous USA Today expose on reverse mortgages included one instance of a homeowner having their loan called due and payable for a two-dollar deficiency on their property taxes. Two-dollars! Sure, they could reach their servicer- but what if they don’t? Who has egg on their face? The lender, loan officer, and the industry as a whole.
“As an industry overall, we need to do a better job of communicating with our clients. We need to make it easy for them to contact us and reach a live person knowledgeable enough to answer their questions and provide appropriate guidance. This needs to be done at every stage of a loan, from origination thru final disposition”, said NRMLA President and CEO Peter Bell in NRMLA’s publication Reverse Mortgage Magazine. Timely words of wisdom indeed.
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We see many national media headlines on how risky a reverse mortgage can be for older homeowners. Risky? This week we briefly touch on the most common risks that can be found in traditional and reverse mortgages and how most risks can be avoided.
Spending the kids inheritance.
Many formal complaints filed on a federally-insured reverse mortgage are from the adult children or heirs of a borrower. Many are unpleasantly surprised that mom or dad took out the loan only to learn that some or all of the home’s equity has been consumed. In many instances the parents could not cover their daily living expenses and chose a HECM to maintain a sense of financial independence. Often the adult children who are expecting to inherit the home were unable to financially assist their parents financially. While heirs may worry their inheritance is being spent, their parents often face real and more pressing and immediate financial concerns in their non-working years. If the parents were unable to keep their traditional mortgage payments current and lost the home to foreclosure, any remaining equity would be lost for both the parents and children alike…
Additional resources:
| Dan Hultquist article: Can a foreclosure occur with a reverse mortgage? |
| USA Today HECM foreclosure map | NRMLA response to USA Today article |
Let’s face it. Foreclosure is an ugly and scary word. Unfortunately, it’s the same word that is commonly used when a Home Equity Conversion Mortgage is terminated- often when the loan balance exceeds the home’s value.
Additional resources:
| Dan Hultquist article: Can a foreclosure occur with a reverse mortgage? |
| USA Today HECM foreclosure map | NRMLA response to USA Today article |
Reverse Market Insight’s recap of June 2019 endorsements states, “2,500 endorsements per month is the default volume setting for the industry right now”. Calculate that out and that would equate to a new low in annual HECM endorsements totaling just over 31,000 loans insured by the FHA this fiscal year (which ends September 30, 2019).
“It’s only up from here” (anonymous)
If there’s a silver lining it would be that perhaps we’ve reached a functional low for HECM loan volumes. Functional in the sense that the remaining large lenders and brokers have found a way to succeed in today’s market.
For those watching our industry’s volume plummet with a growing sense of unease, consider the following:
Barring any further reduction of PLFs or additional restrictions, we may have tested the bottom of the lowest volume of HECM loans. If that is the case, it’s only up from here.
We rarely discuss what is happening in the traditional mortgage market. Yet the larger overall mortgage market and prevailing 30-year mortgage rates have a direct impact on reverse mortgage borrowers and our industry at large.
In the conclusion of our interview we discuss adjusting to the October 2017 HECM reforms, keeping in front of referring partners, and how to strike up a constructive conversation with financial professionals.
