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Preparing for the Financial Assessment & Escrow Set Asides
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Prepare For Reverse Mortgage Program Changes
There is a very popular show on the National Geographic channel called “Doomsday Preppers”. In it so called ordinary Americans show how they are preparing for a worst case scenario. While we are certainly not doomsday-ers prepping for catastrophe we can prepare in part for changes to the reverse mortgage program expected later this year. The Financial Assessment and Escrow Set asides. These two protocols, once enacted from FHA may impact the traditional demographic you have marketed to and served. The first group to be impacted the most is the…
11 Comments
I think August changes will end it for REVERSE for many.
Since we’re moving away from the “spirit and intent” of the program it might be time for a “Sub Prime” HECM that utilizes the same interest rate but is less generous to account for the increased risk.
Regardless, PLF factors need to be reduced across the board if the program is to stay out of the red long term.
Excellent segment Shannon!
Many are going to see these changes as a doomsday scenario, but in fact these changes represent the evolution of the reverse mortgage from a needs based “product of last resort” to a very viable retirement planning tool that can be used by mainstream America.
I too am saddened that we may very well be losing the ability to assist those “needs based” seniors but it would be more of a tragedy if we did not make the needed changes to insure the reverse mortgage product itself didn’t survive.
As always, an incredibly timely and relevant topic!
Mike,
How difficult will that transition be? How much slower will turn times become? Will the proposals increase operating costs to the point where lenders will reduce compensation to retail originators and brokers?
You, Tane Cabe, and others are centered on Realtors. Do you think the proposals will further diminish the effectiveness of the H4P or in some peculiar way, enhance it?
Shannon,
As usual you are doing a great job of informing the industry of important changes just on the horizon. Clearly our targeted senior economic segment will be impacted by the changes you cite.
There are more CFPs nationally than we had HECM endorsements last year; however, just like attendance at NRMLA, most CFPs do not attend local FP meetings. However, going to FP meetings is a good introduction into the financial advising community. CFPs only represent a small portion of that community.
As to the HECM for Purchase segment of our industry, it seems so small that it is hard to find justification to address anything other than to say, these first returns look more like strip mining than a strong basis of doing business. The anecdotes provide a basis for discussion but as we all know as the real estate market goes, so will HECM for Purchase originations, that is, IF it really gets a foot hold which has yet to be seen.
I cannot agree with Jim that PLFs “need to be reduced….” There is no evidence to show reduced PLFs now will help reduce the losses in prior years’ HECM cohorts. All reducing the PLFs will do will be to decrease the risk of loss for the current cohort of HECMs being endorsed and thereby PERHAPS preserving more of the MIP for the current cohort; reducing PLFs now will not reduce losses in the prior HECM cohorts except for to offset such losses by any excess MIP from future endorsements, if there is any excess MIP.
Great comments all! We are now being forced to relook our traditional market segment and to prepare for the impact on our businesses.
I am new to the Reverse Mortgage business so as yet I do not have a well-developed opinion as to what adjustments should be made to the product to insure its long term survival. However, as a tax payer, it is in the best interests of the country to address the MIP deficit. It is also in the best interests of those of us in the business because without change the product is in jeopardy. Both interests would be best served by providing the regulators with the best possible data to establish the new guidelines. Hopefully our industry can provide some of that data. It’s the old story “garbage in garbage out” so if accurate data is not forthcoming the likely result will be the regulators will take the most conservative route and price the product to take into consideration another “Black Swan” event. That type of pricing would be unrealistic and would surely have a very negative effect on eligibility and therefore not meet the needs for which the product was intended. Let’s hope the leaders of our industry can pitch in with some great data.
I will not take a ‘doomsday’ position on these changes as in some cases there surely are folks who should not do reverses and my company consults for many like that. Since I represent homeowners and am not a part of the industry I can say that the old axiom “leave a program with the gov’t long enough and they will surely screw it up”, certainly applies here at the expense of the most demeaned group of Americans in our society, those who really need the help. I believe the impact on your industry will be much larger than you envision. Not only will you lose that market but then you will also find that seniors in a more fortunate economic position will not be nearly as inclined to do reverses and I believe your own statistics will show that now. If the government and its regulators really want to manage something let them go after some failed programs that really have an impact on this country instead of a group of relatively naive seniors whom we should be taking care of anyway.
Shannon,
Thank you for the timely information regarding probable changes to HECM.
I am not happy that PLF reductions are likely to occur. We are already seeing them reduced the past couple of weeks as the 10 year swap rate rises and is likely to push us to the 250 Libor with resultant higher origination, if the present trend holds. As rates increase, the borrowing power of seniors is further impacted, right at the time we are seeing overall property values increasing.
I would prefer to see the Standard product MI adjusted up, introduce a third tier for HECM between Saver and Standard with MI commensurate to calculated risk, and no further reduction to Standard PLF. Addressing the MI costs more similar to how the forward world addresses LTV/MI.
The additional tier would catch those that fall between the two current PLFs. How many of our customers requiring forward mortgage payoffs would benefit from this? This additional tier would provide buyers another option to use the HECM, with additional choice of down payment and cost.
What’s the big deal about our customers that need the product? Why abandon them? How many Americans turn 65 every day? You know the number. What is the average amount of retirement funds Americans have that intend to retire in the next 10 years? $70,000. Given these stats, it is safe to say the ranks of the “needy” are growing.
Would we not agree that there is a tremendous need for the product? If many of the “needy” realized the safety and flexibility of HECM, they would be beating down our doors. The same could be said for those that don’t necessarily fall into that category. Lord knows we originators are doing our best to spread that message. And, even though Brother Fred Thompson does his level best to reassure the public “you still retain ownership of your home”, that fear persists with many of our prospects.
I hope the two year period required to implement some of the potential changes will give the powers at be the time to make them prudently. Prudently, for the good of all seniors that will eventually need or want to leverage HECM.
Jerry,
Excellent and timely points. Thank you!
Jerry,
Quite heart felt.
Yet all of the reinsurances in the world do not take away a lien against the home. In the mind of many seniors who get HECMs, the only realistic outcome for their home is that when the HECM terminates, the HECM will be foreclosed on with little to no equity left in the home. They look at the HECM as a deferred sale on their house; all they feel as if all they will become is the caretaker with some hope of sharing some small amount of equity in the future.
In several meetings with seniors, I have explained title status with a HECM and they in turn have said: “What does it matter? We are going to lose the home anyway.” The impression in the minds of many seniors is that in all practical senses, the house is no longer theirs.
Legal technicalities aside, how many homeowners (heirs, estates, or trusts) have you seen who have retained the home? It is a rarity!!