HECM Challenges: Less Money-Higher Costs?

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The good & the bad from recent HECM changes

Sudden industry product changes are always coupled with challenges. Reverse mortgage professionals are seeing first-hand the impacts that HUD’s October surprise will have on borrowers seeking to refinance and payoff their mortgage and those seeking to purchase a home with a HECM.

For several weeks on this show, we’ve run down several short and long-term consequences of HUD’s reduced lending ratios, the returns of origination fees,  and new insurance premium pricing. Today we are going to look at two scenarios- the borrower with a higher mortgage balance and a HECM for Purchase scenario.

Despite the financial assessment, several borrowers who would meet the guidelines are seeking to eliminate an existing mortgage who still have a nearly 50% existing loan-to-value ratio. In this example, we have a 72-year-old single borrower with a home valued at $375,000 and an outstanding mortgage balance of $175,000 being well under 50% of the home’s present value. Prior to October 2nd, this individual would only need to come in with $125 at closing after the lender credited or waived the origination fee. However, that same borrower would need to come in with over

…  Download the video transcript here.
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HECM Changes & Impacts on Line of Credit Growth

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HECM ‘line of credit’ growth still beneficial but more realistic

Recent changes to the Home Equity Conversion Mortgage enacted on October 2nd have reduced the ongoing FHA insurance premium substantially and led to many lenders reducing their loan margins to soften the blow of reducing lending ratios or PLF factors. What can be easily overlooked is the impact on the line of credit growth rate.

For decades the growth rate of the reverse mortgage’s principal limit, or ‘line of credit’ was largely ignored or overlooked. Few promoted this distinctive benefit unlike any other mortgage loan offered to homeowners. That changed as reverse mortgage professionals began to engage the financial planning community. The benefits of the reverse mortgage’s use in retirement, and more specifically a series of academic papers illustrated the ‘standby’ reverse mortgage strategy.

With lenders lowering margins by an average of a half of one-percent to soften the blow of reduced lending ratios, and drastically reduced ongoing MIP insurance premium rate the growth rate stands to be reduced by…

…  Download the video transcript here.

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What comes after October 2nd?

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What comes after 10/2? Norcom can help…

reverse mortgage newsNorcom has a business model that will fit your business model…especially after HECM changes begin October 2nd.
About John Luddy: John has trained reverse mortgage professionals how to be successful when sitting face-to-face at the kitchen table with prospective HECM borrowers. Norcom is looking for qualified loan officer candidates. To learn more call 1-860-507-2582 or email John Luddy here

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Do HECM Reforms Fix Past Losses?

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Can recent HECM reforms ever repay the losses of the past?


reverse mortgage newsAn honest examination of the reverse mortgage would recognize that many loans originated prior to 2013, could easily become a future liability. Case and point the now defunct ‘Standard Fixed Rate HECM’. Introduced in the midst of an overheating housing market. With needs-based borrowers comprising a significant portion of HECM loans taken, the seeds of trouble sown came to fruition as housing values plummeted, causing many of these loans to ‘cross-over’ where the outstanding loan balance exceed the home’s value. Subsequent insurance claims spiked.

Complicating matters is the method used to calculate the HECM program’s economic value which swung wildly from a positive valuation of $6.8 billion in 2015, to a negative value of $7.7 billion for the fiscal year 2016.

 

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!

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Take the HECM Changes Survey Today

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HECM Changes: Followup Q&A with Survey Results


reverse mortgage newsFollow up on two biggest questions on HUD’s changes to HECM

We had over 700 participants in last week’s webinar discussing HUD’s dramatic changes to the HECM program. Two of the most popular questions are answered along with the surprising results of our in-session surveys.

The HECM’s State of Affairs

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Irrelevant HECM endorsements and recent developments

The Irrelevancy of Historical Volumes

A sense of frustration can set in for those expecting rapid expansion of loan volume back to our pre-recession levels.   After several years of rapid expansion culminating in 2009’s record endorsement tally of 114,629 loans, last year’s endorsements were a sum total of 48,000 endorsements. Such comparisons are suspect for a number of reasons- a simpler product offering, rapid home appreciation, generous underwriting guidelines, increased loan complexity, lending ratio reductions, and the post-recession and housing crash.

Considering the headwinds the HECM has endured we can claim both a modicum of success and a measured optimism for future market expansion. However, fixating on the apple and oranges comparison of historic volumes ignores larger macroeconomic forces and serves only to distract us from more pressing matters.
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Too good to be true?

One hurdle to increased consumer adoption of the HECM is the fear that if it sounds too good to be true, it probably is. The ability to leverage an illiquid asset and transform it into a potential source of predictable cash-flow is an attractive yet counterintuitive proposition for many Americans wanting to age in place. Sweetening the deal is the fact that the HECM’s unused available funds, or principal limit, grows each year based on the current interest rate plus the MIP. Caution must be exercised when making claims as to just how large

 

HECM Changes Coming This Fall

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change-pillDespite executive order, more HECM Changes coming this fall

One would think our industry may catch it’s collective breath from the rapid nonstop pace of new rules and regulations for the Home Equity Conversion Mortgage. Such hopes were bolstered with the February announcement of President Trump’s Executive Order curbing federal regulations. However, it appears that HUD’s final rules will in fact be implemented this fall. What do such changes hold in store for the reverse mortgage industry?

Perhaps it is fitting that HUD’s final HECM rule will arrive just days before the fall season officially begins on September 19th. The rollout will come in three phases: self-implementation, changes to the Single Family Housing Policy Handbook, and future mortgagee letters. During the National Reverse Mortgage Lenders Association meeting last week in New York City, the association’s president and CEO Peter Bell expressed their comfort on the direction of the coming rules changes.

Some additional changes are welcomed by industry participants. These include ….

The HECM May Have to Move Out of FHA’s MMI Fund

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Will the HECM move back to the General Insurance Fund?

HECM & General FHA MMI Fund
HECM & General FHA MMI Fund- Click to enlarge

While the overall FHA MMI (Mutual Mortgage Insurance) Fund is showing positive signs of recovery, the HECM portion of the fund has been much more volitaile than the traditional mortgage segment. With the latest actuarial report showing a negative  economic value some are calling for the HECM to be separated into its own fund…