HUD Considering New Reverse Mortgage Product

September 14th, 2009 | by John Yedinak Published in FHA, MBA Reverse, News, Reverse Mortgage | 14 Comments

Despite the possibility of the Home Equity Conversion Mortgage (HECM) changing due to the $800 million subsidy request, the US Department of Housing and Urban Development is considering adding an additional reverse mortgage product to serve the needs of the senior population.

Last week at the Mortgage Bankers Association conference in San Diego, CA, Meg Burns, Director of the Office of Single Family Program Development at HUD, said that its looking at offering a HECM “mini” along with the HECM currently available.

Currently being developed, the details are scarce but, Burns said the product gives seniors the means to receive a fixed amount of money with a smaller principal limit.

Depending on the structure of the program, Burns said that HUD may need to do some regulatory work. HUD is in the process of looking at what would happen if consumers start choosing the HECM mini, would it set off a waive of refinances and create a churning effect.

Burns wouldn’t give a specific date on when to expect the program but she said that “HUD will be reaching out to the industry to gather feedback” as it gets closer to being finished.

While this isn’t the first time the HECM “mini” has been brought up, it sounds like HUD is serious about the product.

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dduck12

I always kiked those miniature eclairs instead of the big ones (then you wind uo eating three).
rmgal

Because some of the seniors I work with are equity rich, yet they are personally very conservative, they would respond well to a more conservative loan option
The_Critic

If seniors are difficulty meeting insurance and property taxes with higher principal limits, will this product exasperate those situations and add even more? How will MIP be structured? Will origination fees receive a lower cap?

While the idea seems like a good one, there is a lot more information that is needed in order to gain some insight as to what this product is designed to do and will do.
treverse

dduck-
Good one! I identify with that! Seriously though,
this could be a great nicne product. I have had loans where the senior just wanted a certain amount. Two situations come to mind. One wanted 100K to buy a small vacation home and another who wanted to give her daughter money for a down payment on a home. They didn't move forward because of the high costs. Over 20K in costs to borrow 100K?

This does not sound like a good option for the senior who is struggling financially and keeps coming back for the second or third eclair. That would certainly be churning.
Abel Torres

Interesting move. We have talked and proposed similar alternatives in the past. The good news is that if a new product is developed, with a lower risk profile to the HUD MMI fund, then a new calculation for the required (or not) subsidy can be made assuming projections of demand of the new product and switch overs from the tranditional HECM. This a key point, because it may keep the current HECM as is, and if the subsidy projection is diminished or eliminated then there may not be a reason to pass those bills which are negatively affecting the existing HECM product.
markdraper

What about the Co-op HECM?? Any one know whats up with that. Its almost a year since that was rolled out.
ericdmiller

TReverse…you might want to give me a call to discuss client's like you just described. Through Bank of America I can offer a proprietary jumbo product that would offer a smaller benefit amount and lesser fees…borrower 62 and property value of $625k would net $172k with fees under $8500. (805)957-4452
James_E_Veale_CPA_MBT

Mr. Draper,

HERA was enacted on July 30, 2008. Senior coop owners have been waiting for almost 14 months for a Mortgagee Letter. My crystal ball is cracked and clouded when it comes to predicting the implementation date on HECMs for coops.
James_E_Veale_CPA_MBT

Mr. Miller,

So what are the interest rates? The less than 30% LTV is miserable unless that is all of the cash that the senior will ever need. This is about a 5% upfront total cost for each dollar of available proceeds.
markdraper

Mine is on the fritz also.
ericdmiller

Mr. James Veale,

The interest rate is the 1 Month LIBOR plus a margin of 2.95% and
adjusts monthly. And yes the LTV is under 30% for a borrower just 62
years of age. This is a jumbo product and is meant for higher value
properties where a 30% LTV would yield a considerably higher benefit
then a HECM. Property values are capped at $10m on this product. The
only reason I mentioned it was to offer an alternative to the gentlemen
who had a borrower that did not want to borrower as much and pay fees in
excess of $20k, but really this is more of a solution for property
values in excess of $1.5m. And yes, the total fees represent 5% of the
benefit in the example I provided (no different then a HECM) but
consider a property value of $1.5m where the benefit would be $420k and
the fees of about $14k would represent only slightly over 3% of the
benefit. And as the property value escalates the fees as a percentage
decline further due to a cap on the origination fee. There is also a
credit line growth rate that is fixed for life regardless of the amount
of funds used and represents .5% of the property value annually.
James_E_Veale_CPA_MBT

Mr. Miller,

It is a good alternative. However, HECM upfront costs generally result in a cost of greater than 5% for each dollar of net proceeds available to pay off existing mortgages and distribution to the borrower or purchase a home.
Kathy McKee

They are already lowering the pricipal limit. What is the point of a mini. Its already here.
Kathy McKee

They are already lowering the pricipal limit. What is the point of a mini. Its already here.

HUD Considering New Reverse Mortgage Product

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