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Diversification or Separation of HECM and Traditional Mortgage Lending

As the national debate on the morality or effectiveness of a wall on our southern border rages on, one barrier is being slowly removed. As the number of the federally-insured reverse mortgage loans has languished in recent years, more former reverse-only lenders are making their entry into traditional mortgage lending; in effect removing what was once a barrier of niche mortgage lending for some.

Considering such diversification, it’s natural to ask if loan officers can be just as effective in originating both traditional and reverse mortgage loans. That question brings to mind a statement made 10 years ago by a formerly forward-only originator. Seeing the upcoming spate of changes to the HECM he said, “watch, they are going to turn this into a traditional mortgage”. One could easily argue the enactment of the financial assessment and the verification of an applicant’s income and assets does indeed mirror much of what is common practice for traditional mortgages. Despite the similarities, there are two conflicting viewpoints on whether originators should remain specialized or offer both loans…

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1 comment

James E. Veale, CPA, MBT February 25, 2019 at 1:54 am

Not every originator should be offering both categories of loans. Under federal law, they are distinct with a special definition for reverse mortgages found at 15 USC 1602(cc).

The old rationale for separating the two was that 1) reverse was focused on a specifically protected segment of the population, 2) with tenure payouts and a growing line of credit, the reverse had more attributes structured like an annuity than a traditional mortgage, and 3) reverses had their own unique characteristics and, therefore their own technical language and jargon, especially when it comes to HECMs.

As HECM monthly endorsement volume continues to dwindle, it seems expanding into the broader mortgage is a necessity even though it may not be the best course of action for the lender, the consumer, or the originator. These are the normal results for industries on a downward trend.

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