The HECM Terminator?

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Has the Terminator traveled to 2015?

reverse mortgage news, HECM, terminator, financial assessmentIn the 1984 syfi classic Arnold Schwarzenegger plays the role of a cyborg who travels from the year 2029 to 1984 hell-bent on the destruction of his present day nemesis.  Not unlike the movie many fear that a new threat has traveled back in time from 2015 to 1989, the year of the HECM’s inception, threatening the very existence of the program. . The Financial Assessment. With detailed income and documentation requirements and the specter of fewer qualified applicants is the Financial Assessment the present day Terminator? Not necessarily.

The real threat from this decade can be found in a housing crash, younger borrowr ages and increased defaults due to non-payment of property charges. This threat forced regulators to travel back to 1989 and examine the program’s mission and inherent risks. HUD faced the daunting task of “reengineering’ the HECM’s core and reducing future risks in the process. The good news is that reverse mortgages have already survived the true ‘judgment day’ that exploded in 2009 with the housing and economic crash.

Fast forward to today and we should note a few things to keep in mind about the upcoming Financial Assessment.

1- Get…

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6 comments

james mccarron March 27, 2015 at 5:01 am

I hope your right, but I don’t think you are. If FA proceeds I predict that the industry will be dead within two years

Reply
James E. Veale, CPA, MBT March 27, 2015 at 9:52 am

James,

How pessimistic.

Mr. Joe DeMarkey just reminded the industry that we have absorbed change before and survived it. There is no evidence that we should look at financial assessment as the change that will destroy the industry.

Exactly what percentage of business do you predict will be lost due to financial assessment?

(The opinions expressed in this reply do not necessarily reflect those of RMS or its affiliates.)

Reply
The_Cynic March 27, 2015 at 8:19 am

Financial assessment is hardly the Terminator of the industry. What is killing so many is “the” purpose of the program. Few understand the purpose of the HECM program and almost no one was familiar with it before fiscal 2009.

What most industry people push are two concepts, aging in place and helping needs based seniors. What people like Dr. Barbara Stucki (whom I greatly respect for her ability and tenacity in improving counseling) could never quite understand is the fact that HECMs are non-recourse mortgages with special features and benefits for those over 62 that is designed to facilitate the management of cash flow throughout retirement. But all of that is financial, not an idealistic social program and as many have found out, not a program that is easily molded into a social program for seniors.

The Terminator showed that those who would not regard what Kyle Reese told them about the future and tried to deal with the Terminator on their own terms were generally harmed, if not killed. The HECM program has its own unique foundation and those who ignore it will be frustrated for years. Those who understand the foundation still may not like the changes or the expected results but at least they will understand what it is HUD is attempting to accomplish and most importantly why.

But for all of those who are intent on staying in the industry for the long haul, the crucial need for the short-term is to master financial assessment now. Not only know the guide but also master it and as Shannon points out, lender worksheets.

Not long ago I heard this adage: “Amateurs practice until they get it right. Professionals practice until they cannot get it wrong.” We have a choice as to which we will be.

Reply
JD March 27, 2015 at 12:04 pm

Things will definitely be more challenging for us but I don’t see it causing the demise of the HECM product. For those of us that are doing forward and reverse it won’t be as much of a challenge as for those who are only in the reverse space. I wonder if FA will spur some of the investors to develop a non-FHA private reverse mortgage product?

Reply
The_Cynic March 30, 2015 at 4:54 pm

JD,

You have got be kiddin’. You “wonder if FA will spur some of the investors to develop a non-FHA private reverse mortgage product?”

Who can afford to compete with a product that losses $7.7 billion in one fiscal year (2014) alone? Then consider that US taxpayers annually pay for all operations and administrative costs of the HECM program through the fiscal year budget process. Then when even MIP is not enough to pay for estimated reimbursements due to HECM termination losses, the US Treasury backs the program. Who is it that you think can compete with FHA?

Understanding how profits at a private insurance company and at HUD are computed is critical to understanding why the HECM program in all practical respects a program that no insurance, banking, or mortgage company can successfully compete with.

Reply
CLIFF RIDDLE March 29, 2015 at 9:16 am

we will survive ,,

Reply

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