What’s stopping HECM loan growth?



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Are repeated HECM changes and stricter guidelines preventing substantial growth in HECM endorsements?

Despite increasing housing wealth, a growing senior population,  and increasing financial need few older homeowners are taking a reverse mortgage. An examination of potential roadblocks and how to overcome them.

6 comments

Jim Davidson January 13, 2020 at 10:01 am

I’m 62+ years young with 30+ years experience in sales, national accounts, State & Local Government, and business development in Information Technology (“Data Processing” for those old enough to qualify for a HECM). What I’ve seen since earning my NMLS license is a business model that’s consumed with process over production. Maybe NRMLA should consider lobbying the Federal Government for a massive overhaul of its regulatory burden (it’s gotten out of hand and everyone knows it). After all, we live in the era of Trump. There’s never been a better time to erase the waste and supercharge the sales volume.

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RMAdvisor January 16, 2020 at 11:11 am

Jim,

If you and others do not like the job FHA is doing, you are free to sell proprietary reverse mortgages. What your comment says is that you do not understand that HUD is not only the primary HECM regulator but more importantly they are the sole insurer for reverse mortgages. A HECM is nothing more than a reverse mortgage with specific features and terms that FHA ia willing to insure.

If HECMs were a bottomless government program, why not negative interest rates right now for HECMs? While HECM lenders are doing well, HUD has been in the position of having to explain why FHA forward mortgagees (and thus forward mortgagors through reimbursements) are paying MIP that covers the projected and experienced losses of the HECM program.

It would be a great idea, if you spent some time reading both the HUD annual report to Congress on the financial status of the FHA MMIF for fiscal 2019 and the related annual actuarial review for fiscal 2019 on the HECM portfolio in the MMIF. The changes in recent years are more about the fact that HUD was simply not aware of the inherent losses that HECMs produce which exceed total HECM MIP.

After reading the report and then the review for fiscal 2019, then come back and make suggestions on how HUD can improve the HECM program so that the MMIF is protected but HECMs are more appealing to lenders, HMBS investors, warehouse lenders, FHA, servicers, lender equity stakeholders, and borrowers. Unless you are a decision maker at one of the larger HECM endorsement producers (averaging over 100 HECM endorsements per month), don’t expect your suggestions to move NRMLA.

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Jim Davidson January 19, 2020 at 12:09 pm

OK, so if the product is too risky for the guarantors, they should stop offering them.

Call me simple minded, but the HECM World guy’s opening remark in the video was … and I quote: “Despite increasing housing wealth and financial need, fewer homeowners are taking a reverse mortgage. An examination of the potential road blocks and how we may overcome them”

OK … so what’s the objective?
To sell more HECM’s

And how are we going to do that?
By removing the “road blocks” (aka, the things that slow / stops production).

Maybe I’m just too simplistic, and admittedly, far less nuanced than many here. But just to be clear; after what we saw happen in 2008, where NONE of those responsible for the “mortgage meltdown” at the “top” were held accountable, I have no sympathy for those who would lecture US(A) about the great “risks” they take, should they choose to extend credit to senior Americans via publicly-available HECM programs.

We’ve seen it all before … the bigger they are, the better the terms of their bailout.

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RMAdvisor January 20, 2020 at 4:11 pm

Jim,

For decades, we have heard knowledgeable originators complain again and again that lenders do not offer something that is competitive to HECMs. If FHA does not insure HECMs, HECMs go away. With HECMs, the risk to lenders is low (yes, FHA does not reimburse all losses).

HECMs first began to feel the mortgage bust in a significant way following April 2009. Then began three years of horrific losses in endorsements, fiscal years 2010 through 2012. That was followed by six straight years of downward sloping peak to valley secular stagnation. How did the period of stagnation ernd? Fiscal 2019 saw a loss in HECM endorsements of 35.3% when compared to the HECM endorsements for fiscal 2018 (the last fiscal year of secular stagnation with a 12.5% loss in HECM endorsements when compared to the HECM endorsement for fiscal 2018).

I am not sure what lender would need a bailout due to HECMs but it is clear that the MMI Fund will unless FHA forward mortgages will ultimately pay the estimated losses of HECM production.

Yes, things look simple on the surface BUT FHA mortgages were not part of mortgage bust. Why is that? Because of the insurance charged by FHA to lenders for its insurance. Unfortunately in the last three decades, HUD has not discovered what the cost of HECM insurance should be or how HECMs should be tweaked to avoid future losses.

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Melinda Hipp January 24, 2020 at 9:27 am

Jim, I think what Shannon was meaning to really point out is that we don’t even have potential borrowers looking INTO the Reverse Mortgage. Proprietary Reverse Products are NOT going to work in my market (I have only originated 3 in 13 years) so we do need to keep the FHA insured programs around. We need to turn this conversation into how do we get potential borrowers to get off the fence and see that the Reverse Mortgage is truly going to benefit them. I have a client paying over $300 a month in interest to her bank, but she is telling me that the extra $500 a month in cash flow I can provide to her will not let her pay off her debt. So she decides to keep paying the interest to the bank out of her pocket each month. No matter what picture I draw for her, she cannot get off the fence. Others still struggle with not leaving a $ to Junior when they pass on, even though Junior and his sibling are all well off and have thriving families. It’s hard to change societal norms, so we just have to keep trying. There are still thousands of seniors who still don’t understand how the Reverse Mortgage works because there are not enough of us out there doing actual education. The 30 and 60 seconds commercials do not assist in getting folks to LEARN as most folks truly don’t understand this product could be for them. It’s ALWAYS going to be like this, long after we are out of the business. We have to spread the word through education both to the public, our business partners and anyone we can talk to. Get out and schedule an educational event at your local Library, College, Jewish Community Center, Church, Rotary Club or Realtor event. This will do more to produce results then trying to fight with the Government.

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The Cynic January 27, 2020 at 2:40 am

Melinda,

I see your point but I believe there should be a two pronged approach to the problem. Most HECM originators should push the product but there is also a place for being proactive with FHA about well researched changes to the HECM. But that is the domain for ones from Dr. Moulton from THE Ohio State University.

Reply

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