Where Do We Go from Here?

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What will our industry look like after the Standard Fixed Rate?

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 Reverse Mortgage Industry News

The Standard Fixed Rate And Reverse Mortgages

You could say it’s a step back to our industry’s humble beginnings. Before 2009 the Standard Adjustable Reverse Mortgage or HECM was the norm. Being the flagship product of the Home Equity Conversion Mortgage Program loan professionals had little hesitation in selling an adjustable rate product to conservate seniors.

The question is will we see a substantial reduction in new applicants without the Standard Fixed Rate? Most likely not. We may see a modest reduction of borrowers with large…

6 comments

Frank Murphy April 1, 2013 at 7:04 am

Yes, there will be a market. Those that sit around wringing their hands will always be with us. When used properly, an adjustable rate reverse mortgage is a great tool, especially when used with a line of credit.

Reply
Bill Danner April 1, 2013 at 7:35 am

The result is typical of Government’s interference. They used a “Butcher Knife” when a scalpel was called for. If the issue was using the fixed and spending the proceeds in an irresponsible manner. Why not just limit the program to use “fixed” when there is a payoff of a mortgage or to purchase a new home, I dare say the program would be much healthier and more solidly funded using this approach.
This would also limit the “broker” from using the fixed as a commission generator as opposed to what is good for the borrower..

Reply
James E. Veale, CPA, MBT April 1, 2013 at 9:26 am

Mr. Danner,

The issue is the impact of the fixed rate Standard on the MMI Fund. Any fixed rate Standards for any use is harmful to that fund.

The FHA Commissioner did use a scalpel. Many critics believe she should have done the same thing to the adjustable rate Standard. The HECM portion of the MMI Fund is in deep trouble with no way out.

My comments in this thread do not necessarily reflect the views of Security One Lending or its affiliates.

Reply
James E. Veale, CPA, MBT April 1, 2013 at 9:15 am

I enjoyed hearing you use the word “humble.” Fiscal 2007 and 2008 were two of our only three years when over 100,000 HECMs were endorsed. In fact in fiscal 2007 when the first fixed rate HECMs were endorsed until October 1, 2009, fixed rate HECM endorsement levels were so low they seemed to be more curiosity than major offering. Of course, in three fiscal years their 16,000 total exceeds the total of all Savers and HECMs for Purchase ever endorsed combined; yet total endorsements in those three fiscal years was 334,400.

Those first three fiscal years for fixed rate HECMs (there were no Savers back then) were disappointing due to the constant feedback (even when fixed rate HECMs were being endorsed) that seniors were disappointed we had no fixed rate HECMs. After the experimental stage it still took two fiscal years before fixed rate HECM endorsements took hold.

There are many originators in our industry who have no idea how to present Savers and some who have never closed an adjustable rate HECM. There will be an adjustment period. It will take at least through the end of this fiscal year before we see a strong adjustable rate rate HECM endorsement level.

Through June, our adjustable rate endorsement production will be somewhat blurred by endorsements of fixed rate Standards which will still be transpiring. Unless housing prices are strong next fiscal year, fiscal 2014 may another fiscal year with poor endorsement numbers.

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jim spicka April 3, 2013 at 9:12 am

“The key to future growth”
“If the Lord’s willin’ and the creek don’t rise”

Rising home values will certainly be “key” to future growth of the HECM program (industry of you insist) so long as nothing else happens to stifle, impair or impede it, like
New onerous regulations, reductions in PLF factors, Financial Assessment, Rising interest rates, Acts of Congress, Increasing costs for appraisals and full loan origination fees, loan proceeds reductions for the long forgotten “servicing fee set asides” and so long as borrowers don’t owe too much on their mortgages.

Reply
Shannon Hicks April 3, 2013 at 9:35 am

Good points Jim. Thank you! Just how high will the waters rise?

Reply

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