BREAKING: HUD Cuts PLF Factors, % Rate Floor & Increases Upfront FHA Insurance Premiums

reverse mortgage news

Without any prior warning or industry comment, HUD formally announced an increase of upfront insurance premiums for all borrowers, regardless of initial distributions, to 2% upfront, and .5% for ongoing mortgage insurance premiums. The agency stated the need to ensure the continued economic sustainablity of the HECM program and its fiduciary responsiblity to taxpayers.  [See Mortgagee Letter 2017-12] [ Wall Street Journal Article View on Facebook to see full article]

HUD has lowered the interest rate ‘floor’ from 5.06% to 3.00% in it’s PLF tables, essentially pushing lenders to compete on interest rates and margins. We expect to see more lenders switch from the monthly to the annual adjustable LIBOR index in response. In addition the new PLF tables accomodate a rising interest rate enviornment with lending ratios provided as high as up to 18.875%, wheras the previous tables zeroed out lending ratios at 10%. [New 2017 PLF Tables] [Old 2014-2017 PLF Tables]

In our analysis, the reduction in ongoing FHA premiums will significantly reduce the ongoing growth of the HECM’s Principal Limit (available funds), or what many refer to as the line of credit. This development will substantially change several strategies touted in recent years, such as the Standby Reverse Mortgage, and those seeking to use increasing available funds as a hedge against unexpected financial shocks in retirement.

Principal Limit Factor will be reduced from 64% to 58% on average and an approximate 20% reduction available funds for most borrowers:

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* 20% reduction with new PLFs and lower interest rate floor after October 2nd, 2017

HUD is soliciting feedback from interested parties until September 29, 2017. Feeback can be submitted to: answers@hud.gov

Official Mortgagee Letter 2017-12 “Home Equity Conversion Mortgage (HECM) Program: Mortgage Insurance Premium Rates and Principal Limit Factors”

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What are your thoughts? Please leave your input in the Comments section below, and share this post on social media using the Twitter, Facebook and LinkedIn icons at the top of this page. Thank you!

 

The Trump Era & The HECM

ePath 100K RM leads

Good News for HECM, Not So Much for Housing Programs

budget2President Donald trump embodies the essence of a political wrecking ball in Washington D.C.- a city known to cling tightly to political traditions of governing and supporting long-standing social programs, despite our ballooning deficits.

While the President weathers opposition from both Democrats and Republicans alike, his administration’s draft 2018 budget for the Department of Housing & Urban Development reflects populist sentiments of a smaller, efficient government with parsimonious allocations for social program spending. Many feared the populist agenda would gut essential HUD, programs, and more specifically, the Home Equity Conversion Mortgage program.

Politico obtained a copy of the Trump administration’s preliminary HUD budget revealing plans to gut $6 billion from several programs including the outright elimination of the Community Development Block Grant, neighborhood initiatives, and a housing program for veterans. Despite these unpopular cuts, the HECM program was spared and even strengthened.

Two changes stand to liberate the HECM – the removal of the annual cap and the erosion of the unchecked powers of the Consumer Financial Protection Bureau…

Where Do We Go from Here?

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RMD Interviews NRMLA president Peter Bell on Industry Outlook and change 

If you want an example of rapid industry change look no further than the Home Equity Conversion Mortgage program.

where-we-go

Recently Reverse Mortgage Daily interviewed Peter Bell, president of the National Reverse Mortgage Lenders Association or NRMLA seeking insight on the recent spate of changes to the HECM program and our industry’sfuture.

First RMD asked- given the Financial Assessment is underway and the non-borrowing spouse issue seems to be getting resolved, how would you classify the footing of the Reverse Mortgage program right now relative to other points in history?

Download a transcript of this episode here.

Looking for more reverse mortgage news, commentary and technology? Visit ReverseFocus.com today.

Hassle Free Loan?

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A Hassle-Free HECM or Long Term Success?

reverse mortgage newsLast week the Washington Post published an article entitled “Window is rapidly closing to get hassle-free reverse mortgage”. It is a well-written article outlining the change the financial assessment brings but more importantly it outlines the HECM program’s history which lead to such a monumental overhaul of the program. “Interested in a reverse mortgage without a lot of hassles? Better get your application in fast. As of April 27, the federal government is imposing a series of extensive “financial assessment’ test that will make applying for a reverse mortgage tougher- much like applying for a standard home mortgage.”

Indeed the Home Equity Conversion Mortgage has moved from being based merely on age and equity to a fully-underwritten loan, all in the effort to reduce risks for both lenders and FHA. For a quarter century…

Download a transcript of this episode here.

Looking for more reverse mortgage news, commentary and technology? Visit ReverseFocus.com today.

M.O.E. An Alternative to HECM Foreclosures

This monumental policy change comes in the wake of several notable lawsuits brought against the Federal Housing Administration (FHA) and reflects the agency’s desire to close the door on further displacement of younger non-borrowing spouses. Let me begin by saying that this policy is somewhat complex and we will only be covering the primary guidelines of this new policy.

Continue reading

5 Things You May Not Know about the Financial Assessment

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Five Take-Aways from the Financial Assessment

reverse mortgage newsTwo weeks ago today we hosted a national webinar on the Financial Assessment with over 800 participants. Since that time the proverbial dust has begun to settle allowing us to absorb more details for the new way of doing business. That said there are five key facets of the Financial Assessment that may be overlooked or misunderstood.

1- Credit Scores. One could reasonably conclude that anytime a lender is checking a credit report the applicant’ts credit score is a key factor in determining their eligibility. Fortunately unlike traditional mortgages where the applicant’s credit score not only determines eligibility but the interest rate the HECM program has no such consideration. The credit report is soley for examining a borrowers history of paying obligations in a timely manner thus indicating their willingness to meet the financial obligations of a reverse mortgage.

2- Non-HECM liens. Recently uncovered is the requirement that non-HECM liens where the borrower

Download a transcript of this episode here.

Looking for more reverse mortgage news, commentary and technology? Visit ReverseFocus.com today.

A Plan for Change

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reverse mortgage news

Preparing Yourself for the Financial Assessment

“The reed which bends in the wind is stronger than the mighty oak which breaks in a storm”.

reverse mortgage newsThough centuries old this familiar quote could have been written for the reverse mortgage professional. The last two years have given us both numerous and monumental changes to the federally-insured Home Equity Conversion Mortgage Program. That change is here to stay regardless of our misgivings, approval or apprehension which leads us to the question, ‘how can we prepare for change?’.

Here are five points to ponder in your planning for 2015 and the brave new world of reverse mortgage lending.

1- Adjust your mindset. This is perhaps our most challenging task to date. Even if we strongly disagree with distribution limits, the financial assessment or seasoning requirements for non-HECM liens we must first get ourselves into a mindset of acceptance and implementation. The good news is we have a few months to settle our misgivings and concerns before we reach out to new potential borrowers once the Financial Assessment is enacted. If we skip this step our prospects will sense our hesitation or lack of belief in the program and respond in kind.

 

2- Prepare your approach. Rather than a script write down the…

Download the video transcript for this episode here.

Looking for more reverse mortgage tools, training & technology? Visit ReverseFocus.com today. 

Now Younger in Reverse…

When is a HECM beneficial for couples with a spouse under 62?

[ad#Take Charge America]Now that FHA will be accommodating younger spouses under the age of 62 this August, it behooves us to examine the impact on our market. Here are just a few scenarios where couples with a spouse under 62 may benefit or should avoid taking a reverse mortgage.

reverse mortgage newsA Better Fit

Income Security:

The husband is over 62 and wishes to offset reduced household income for his younger wife. Their are two areas where married couples incur substantial risk of seeing their future income reduced when one spouse passes away: Social Security and pension benefits. Generally speaking the surviving spouse receives the equivalent of the larger Social Security monthly benefit but forgoes the smaller check. Also pension survivor benefits range from zero to seventy-five percent of the original benefit. In this case the husband can secure future proceeds (although smaller due to the younger spouse) to ensure his wife can meet ongoing living expenses.

The Tax Crunch:

Qualified account withdrawals. Couples who find themselves strapped for cash may be tempted to access funds from qualified accounts early. Early withdrawals from IRAs and other retirement prior to age 59 1/2 may be subject to a 10% tax penalty plus the entire withdrawal is treated as taxable as income.. By utilizing a HECM line of credit or tenure payment couples may be able to defer taking withdrawals until  age 60 or later both avoiding the tax penalty and allowing their nest egg to grow a few more years.

Better to Wait?

Deferred Line of Credit & Interest Rate Risk:

Client does not need money for several years and has little concern of future income for their spouse.. Since the principal limit will be based on the age of the younger spouse it may be more ideal for the couple to wait until both reach the age of 62 or a clear need is present. Even though the line of credit grows each month the benefits of waiting may exceed the future growth in the line of credit. One caveat. We have historically low interest rates and waiting until rates are higher may reduce the available funds below that which they would have received even with a spouse under the age of 62. This requires a full and complete discussion where your borrowers can weigh the risks and benefits alike.

Marital Uncertainty:

Marriage is uncertain proposition, even for older couples.. If the prospective borrower’s marriage is on shaky ground any benefit of including the younger spouse may be eliminated by a divorce. In such cases it is wise to wait. As reverse mortgage professionals we never ask about the current state of marital bliss, but if the issue is brought up by either party we must inform them of the long term consequences that a divorce would create.

FHA’s new considerations for younger spouse opens countless opportunities but also requires another level of due diligence on our part. What are your thoughts? What considerations do you see for couples with one spouse under the age of sixty-two?

Download a PDF of this blog post here.

Looking for more reverse mortgage news, technology & training? Visit Reverse Focus today.