Researchers present HECM fixes last week

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How do you fix the reverse mortgage and expand its availability? Researchers presented their ideas last week

There’s no shortage of ideas when it comes to just how to strengthen the federally-insured reverse mortgage and expand its reach to older homeowners. Last Monday, the Brookings Institution hosted a symposium entitled “Reverse mortgages: Promise, problems, and proposals for a better market”. Participants included AARP’s Debra Whitman, Stephanie Moulton of Ohio State University, University of British Columbia professor Thomas Davidoff, Longbridge CEO Chris Mayer, and Laurie Goodman from the Urban Institute. The event is part of the Brookings Institution & the Kellogg School’s meetings on retirement security. These are not pending proposals for the Home Equity Conversion mortgage, nor are they being debated by lawmakers. However, these policy think tanks play an important role in our federal government and help shape public policy.

2 comments

Julia Atherton Railey November 4, 2019 at 5:27 am

The annuity option is not being used as much as it should and is very important to keep for the cycle when rates have risen and begin to drop again. The 6% who used it have important reasons and the rationale behind it is worth while. If you think the options are too complex, you aren’t explaining it well. Taking away options is not a great solution for reducing complexity.

Reply
James E. Veale, CPA, MBT November 4, 2019 at 1:14 pm

What is the complexity of the HECM program? Is it merely in seniors making several financial decisions? The basic problem with the HECM is satisfying 5 distinct industry participants simultaneously — 1. consumers, 2. protecting MMIF participants other than HECM borrowers from fundamentally high MIP, 3. government and regulators, 4. HMBS investors, and finally, 5. lenders.

What we heard in that brief summary are things dealing principally with consumers. Yet satisfying one group does not mean any of the remaining four will find such change acceptable. It is this balancing of interests that make dealing with the HECM changes so difficult.

I personally see little, if any, hope of making the present value of the projected cash flows for future cohorts of new HECM endorsements positive in the long-term without either a fundamental change to the structure of the Principal Limit Factors (PLFs) by using a geocentric approach to home appreciation or just lowering them for everyone. If done the first way, the HECM program will be more dependent upon home values along the Atlantic and Pacific Coasts than ever before. If done the second way, demand for HECMs will flatten much worse than it is right now. We live in a world without easy resolution to very complex issues because of the diverse interests of the 5 distinct major participants in the HECM industry.

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