Indicators show we’ve reached the bottom but a more significant question has been largely ignored. Is the key to reverse mortgage industry’s long-term growth and recovery lie with traditional mortgage lenders? It’s a sincere question that begs examination considering there are tens of thousands of FHA-approved originators…
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The harsh realities in our industry and hope can both coexist. Here’s why…
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The following commentary does not represent the official position of Reverse Focus, Inc.
Last October just days after the agency enacted substantial cutbacks to the Home Equity Conversion Mortgage, HUD Secretary Ben Carson spoke before the House of Representatives saying “the changes we’ve made will sort of stop the bleeding in terms of new reverse mortgages”. However, despite rising home values, numerous program tweaks and lending ratio reductions the program continues to raise concerns among lawmakers who see increasing liabilities in FHA’s Mutual Mortgage Insurance Fund.
FHA Commissioner Brian Montgomery addressed this challenge in a recent interview with Reverse Mortgage Daily “We are digging deep in the portfolio to find out of the problem is on the front end or the back end,. My sense is that it’s more on the back end in terms of the losses we are experiencing.” Commissioner Montgomery is rightfully concerned that many of the HECM program’s ‘losses’ may be on the back end since HECM liabilities continue to mount even after the enactment of the financial assessment, principal limit or lending ratio reductions, and first-year distribution limits.
One area that FHA intends to closely examine is the appraisal process- more specifically to see if home values are being artificially inflated. The concern is heightened since properties with a HECM tend to depreciate more quickly than homes with traditional mortgages, said Montgomery. FHA will be comparing existing appraisals with AVM
Download the video transcript here
The following commentary does not represent the official position of Reverse Focus, Inc.
You don’t have to the read industry blogs to know that reverse mortgage volumes are in retreat, not only from the historic levels, but even from the previous year. Recent data shows current 2018 HECM endorsements are down 13% from the previous year. As reported here, last month Reverse Market Insight saw signs of a potential leveling off of market volume with May HECM endorsements nearly identical to April. However many originators in the field remain challenged in the post-October 2nd world of originating HECMs. HECM professionals are finding that many interested homeowners no longer qualify due to the last round of lending ratio or principal limit factor reductions enacted last Fall.
However, some HECM lenders and originators have bucked the attrition in loan volume posting gains in 2018. They key? Specialization
The following commentary does not represent the official position of Reverse Focus, Inc.
Since the housing and economic crash nearly 10 years ago our industry has valiantly labored to not only increase reverse mortgage acceptance and loan volume but also adapt to a plethora of new regulations and HECM program reforms. The real test of our industry and the Home Equity Conversion Mortgage is to balance the need to reduce program risks while ensuring the HECM remains accessible to older homeowners.
On one side many originators cite the two biggest challenges to increased acceptance as high upfront costs and reduced principal limit factors or lending ratios. On the other side, HUD faces the task of taking measured steps to reduce the likelihood of HECM loans resulting in an insurance claim or payout. Recent reports showing increased ‘losses’ in the program have resulted in significant HECM cutbacks in recent years. The tension lies between increasing accessibility to the HECM while successfully managing the risks to the FHA insurance fund which has backed the program since 2009.
Earlier this month the Brookings Institution (a Washington D.C. think tank) advocated for a ‘reformed’ reverse mortgage. Their proposed reform? Offer reduced FHA insurance premiums for low-risk borrowers utilizing fewer funds- in essence, a return of the HECM Saver. The study as covered in Reverse Mortgage Daily elicited a slew of comments-many which took exception to the study’s conclusions. Perhaps overlooked was the Brookings Institution’s outright support of the HECM program.
Beyond the debate or reintroducing a Saver product lies the question- what will increase acceptance of the federally-insured reverse mortgage?
What is the biggest risk to the HECM? It may be hiding in plain sight…
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If you’ve been originating reverse mortgages for longer than a few weeks or paying attention to recent developments you’ve probably felt the impact of our collective dependence on a singulargovernment-insured loan and heard the dire warnings of a continued decline in loan volume. But not unlike most drastic proclamations of doom and gloom the truth lies between the extremes.
All which brings us to the question- is the reverse mortgage or HECM market in a continued downward trajectory? The number of FHA case number assignments issued for new HECM applications serves as an accurate leading indicator of consumer interest in the loan. The average number of HECM case numbers issued in both 2016-17 averaged nearly 7,000 per month. Predictably case numbers plummeted after last September’s rush to beat October 2nd HECM cutbacks in the wake of a record 20,408 new applications. Yet despite this aberration today application volume is steadily climbing an average of 9 percent in the first 3 reported months of 2018. Interestingly, if that trend were to continue
A look back at the stories of 2017 that shaped the reverse mortgage industry
Continue readingBeyond absorbing the recent HECM overhaul with it’s lower lending ratios, reduced interest rate floor, and a higher upfront FHA insurance premium should prompt two crucial questions- how will this impact my potential borrowers? How should I adjust my marketing and sales approach as a result?
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The chorus of dismay from reverse mortgage professionals lamenting declining reverse mortgage loan numbers began after the Great Recession and continues through today. Consequently, a sense of frustration and futility has set in for some who believe our industry was decimated in the aftermath of the housing crash, product restrictions and the Financial Assessment. But do we have it all wrong? In other words when considering HECM endorsement volumes are we comparing apples to oranges? Do mere annual sales numbers reflect the true state of our industry?
Jim Veale is more than an industry veteran- he’s a numbers guy. Not surprising considering his background as a CPA with a Masters in Business Taxation. While often outspoken on industry issues, Jim has been my personal go-to guy when it comes to the more technical aspects of the HECM market. His recent Op-Ed in Reverse Mortgage Daily does not disappoint.
“Most sales managers, originators, and other participants in the Home Equity Conversion Mortgage industry are longing for significant validation that the sales efforts of this decade have had any meaningful results.
