I think both you the The Cynic share similar concerns. The Cynic has a very good grasp of the inner workings of our industry.

For myself, while the technical details can be overwhelming, the bottom line question that always lurks in my mind when another restriction/regulation is added to the HECM is: 1- Why do we need this? and 2- Does this really help the majority of seniors trying to obtain a HECM in the first place.

Let's hope a pragmatic approach rather than a reactionary one is chosen when it comes to T&I set asides.

Unfortunately, it wasn't well-said enough for The Cynic. He corrected me on the percentage of MCA that triggers HUD's involvement and the influence of the investor – an area I'm happy to admit my weaker understanding. He also seriously misinterpreted a comment about a potential choice that a few borrowers might have and launched from that incorrect base to a greater off-target trajectory of misunderstanding. He does that in a lot of his posts, but his technical knowledge is valuable.

Time to go submit a new loan.

I have difficulty with your comment on several fronts.

First one needs to understand the difference in the responsibilities of the lender when it sells a HECM to Ginnie Mae versus selling a HECM to Fannie Mae. As long as the loan balance due has not reached 98% (not 90%) of the MCA, a HECM cannot be assigned to HUD. Under the Ginnie Mae agreement, before assignment the lender remains secondarily responsible for taxes and insurance while Fannie Mae takes on this responsibility. So what exactly is the FHA role before HECM assignment as to T & I or have I misrepresented the actual situation?

Despite the general tone of your argument, the situation is becoming more acute as each day goes by. What is accelerating the problem is the popularity and percentage growth in the number of endorsed closed end HECM products and the percentage decline in the open end HECM products. With the open end products, history shows there is a significant percentage of these loans where there is still enough available in the line of credit to pay T & I for several years. There is no such situation with the closed end product.

An election by borrowers is hardly a responsible answer to the problem. It is doubtful if a significant percentage of those who actually need the set aside would ever elect it. That is a very optimistic view of human nature. In fact most of those who elect it would prove to be those who never needed it.

Far more relevant would be a determination by counselors and underwriters. Perhaps gathering the necessary data should be the job of the loan officer during a required meeting with the senior in their home. Some like OneReverse will object but for many seniors this is the only effective and accountable way that the underlying data can be gathered and properly distributed to all necessary parties. If the counselor determines that a set aside is required, seniors should be permitted to appeal to HUD. If the underwriter reaches the conclusion a T & I set aside should be required, no appeal should be allowed; the senior should just find a different lender.

The originator should be subject to penalties if the information provided proves to be derelict or in any substantial way fraudulent. Without a penalty regimen, there will be a built in incentive to insure that someone who will not qualify for a HECM with a T & I set aside somehow “magically” shows the cash flow numbers needed to avoid one. Will this process require a certain amount of verification by the originator? Probably enough to demonstrate that a significant portion of the data was verified.