Reverse mortgage originators are preparing for product change in the market that promises to turn the product mix selected by borrowers on its head. As for reeducating those borrowers on the potential uses and benefits of a reverse mortgage, however, originators are optimistic that not much is going to change for borrowers. On the other hand, it may be some originators who have to adapt most.
Among the changes noted by Federal Housing Administration leadership: a hold on the origination of fixed rate Standard product, a financial assessment for borrowers and a potential set-aside for tax and insurance payments.
For originators, some update may be needed for the sales process, they say, with the remaining options being a fixed rate Saver product, an adjustable rate Standard product, and an adjustable rate Saver.
“The elimination of the Fixed Rate Standard will force loan originators to be better educated and do a better job of offering choices to consumers,” says Lance Jackson of Castle Reverse. “…this change will favor the more financially savvy originators over those with limited financial acumen.”
It could mean more work with financial advisors, who have long approached the reverse mortgage not as a last resort, but as a financial planning tool.
“Looking back to before we even had the fixed, I was working with financial advisors who saw the benefits of the reverse mortgage and how it can protect other assets,” says Beth Paterson, executive vice president of Reverse Mortgage SIDAC, the Minnesota division of Greenleaf Financial, LLC. “For my client base, I don’t think it’s going to make a difference.”
One concern is that if a fixed rate standard product is no longer available, the adjustable rate product will be the next-best option for some, when adjustable rate loans have gained a stigma through the bumpy years of the housing crisis.
“The profile of a homeowner interested in a reverse mortgage won’t change as a result of the elimination of the Fixed Rate Standard,” Jackson says. “But some homeowners will opt not to go with one out of fear of adjustable rate mortgages, although sometimes this fear is misplaced.”
That profile may be somewhat overdue for a change anyway, as the market readjusts to meet cultural differences among borrower generations.
As for whether there will be a new “average” borrower, the answer is: it depends.
“I tend to believe that it is the other way around,” says Mike Gruley of 1st Financial Reverse Mortgages. “HUD is changing the products, because we have already seen a different average borrower. I believe that the product that once served the Greatest Generation effectively is evolving to adapt to the needs (and sometimes the shortcomings) of the Baby Boomer Generation. The Boomers view debt differently, and the products will likely change to not only suit the borrowers needs and behaviors, but also, and more critically, to suit the budgetary guidelines of HUD.”
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