Download your August Top 100 Retail HECM Lenders Report Here.
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The top ten lender positions remain relatively unchanged while Nationstar broke last month’s top 10. In the wake of consolidation and acquisitions it appears that the largest lenders have firmly established their positions. What remains to be seen is the lender specific effects due to the upcoming elimination of the Standard & Saver products and the introduction of a new replacement HECM loan.
BREAKING:Read Mortgagee Letters 2013-27 & 2013-28 for complete details of changes.
A second look at the Mutual Mortgage Insurance Fund is exactly what FHA plans do to after setting the wheels in motion for historic changes to the reverse mortgage. Yes, after committing to eliminating both the Standard and Saver product in lieu of a new one FHA wants another look. It all began in November 2012 when an Actuarial review of the MMI fund found that the reverse mortgage portion accounted for a negative 2.8 billion dollar economic value. Economic value is a better description than losses for these are projected losses based on actuarial analysis and data. In other words, with home values that fell this percent and projected loan balances and appreciation the fund would pay X dollars. Early figures showed the HECM portion of the fund accounted for 2.8 billion in projected losses of the 16 billion dollar overall future shortfall. Later that figure was revised to show projected losses from reverse mortgages totaling $5.2 billion. The dire numbers were too unsettling to ignore. So why the second look at the fund at this stage?
See what FHA’s plans are for the HECM program. From two loans products will come…
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Money makes the world go around…well at least for today’s retiree according to a recent study. The National Council on Aging or NCOA’s survey “The United States of Aging” shows 53% are more concerned about outliving their money than their health. Last week we discussed the long term care crisis and the reverse mortgage’s role. Unfortunately money and a retiree’s health and long term care go hand in hand. A popular quote reads..
When it comes to those seeking to solve the issue of senior’s aging in place perhaps on quote should be mentioned. “Sometimes we stare so long at the wrong things, we miss out on the RIGHT thing standing right in front of us”.
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August or October Surprise? FHA may be able to use a scalpel rather than an axe when it comes to making reforms to the federally insured reverse mortgage or Home Equity Conversion Mortgage program. Late last Tuesday night the Senate granted the Federal Housing Administration the authority to make changes via mortgagee letter rather than the lengthly rule making process in passing House Resolution 2167, better known as the Reverse Mortgage Stabilization Act of 2013. Now the bill awaits the President’s signature. This is a pivotal development because without this authority harsher measures may have been employed to protect the American taxpayer and FHA’s mutual mortgage insurance fund from projected losses. It is expected that FHA will issue a mortgagee letter late this month outlining changes with an implementation date of October first. One HUD official said. We are looking at issuing ML by end of August and, ideally, October 1 for implementation.
Download your July Top 100 Retail HECM Lenders Report Here.
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Although charting the future of HECM changes is confusing, seeing who is grabbing marketshare or growing is not. There were substantial moves amongst the top 10 lenders as well as those outside the top 10 in July.
There’s a saying that say’s “If it sounds too good to be true then it probably is.” That phrase lingers in my thoughts as I review the changes the Home Equity Conversion Mortgage program has undergone since 2010. First cuts in the principal limit factors in the wake of the housing buble and subsequent crash enacted in October 2010. Strangely although the lending ratios (principal limits) were reduced borrowers often received more money because the interest rate floor was lowered from 5.5% to 5.0%. Simply put as long as interest rates remained low borrowers would receive more money. Then came the introduction of the Standard Fixed Rate HECM in 2009. The product required a lump sum withdrawal driving up loan balances and future compounding interest and balances substantially. The borrower won with more funds as the insurance fund’s liability increased. In an effort to reduce risk the Saver HECM was introduced in October 2010. Borrowers would receive less funds in exchange for a substantially lower upfront Mortgage Insurance Premium (MIP).
Looking back it seems strange. Strange that the Standard Fixed Rate was released in the midst of falling home values thus increasing risk to FHA’s Mutual Mortgage Insurance Fund (MMI). Strange that the interest rate floor was lowered effectively giving borrowers more borrowing power in a low interest rate environment. It was hoped the Saver would be adopted by many cost-conscious borrowers reducing FHA’s risk exposure yet it’s market share never took off as projected. In fact in the wake of the elimination of the Standard Fixed Rate HECM borrowers overwhelming chose the remaining ‘standard’ product…the adjustable rate. It was proof that products don’t drive the market, consumer demand does. Borrowers voted with their pens proving that most are after maximum cash and are less concerned with cost.
Is this to say the original HECM program was unsustainable? Absolutely not. The original program could have never anticipated two things: a shift to younger borrowers and the collapse of home values in late 2008. Both HUD and FHA have seen the writing on the wall. Business as usual is not an option and risks must be mitigated. While many reverse mortgage professionals may not agree on all actions taken or expected changes we can all agree we need a sustainable model. One that remains to meet the needs of senior homeowners while not siphoning large sums from the insurance fund for claims.
The water is under the bridge. We cannot undue problematic loans written in the years 2005-2010 and the future liability they hold. What we can do is work toward a realistic and measured solution to insure the HECM program remains for future borrowers. Our current plight can best be described in the words of Chinese philosopher Lao Tzu “If you do not change direction, you may end up where you are heading”.
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HUD would prefer to take the surgeon’s approach making fine tuned adjustments to the federally-insured reverse mortgage or HECM program. Presently it is left with the axe of harsh change unless Congress acts to give them the authority needed before the beginning of next fiscal year October 1st. The blunt approach was mentioned in a recent Senate Banking Committee hearing last week when Assistant Secretary of HUD Carol Galante reassured senators that they have no plans to bring back the standard fixed rate product.
Assistant Secretary Galante mentioned another option…more principal limit reductions across the board. “If we can’t make those nuanced changes, we are going to have to say the entire amount [that can be borrowed] is going to be just lowered for everybody across the board.”
