HUD Discusses the State of the Reverse Mortgage in 2017

NEW YORK — Recent regulatory changes to the Home Equity Conversion Mortgage application process have had a visible impact on the complexion of the program, according to a regular update from Department of Housing and Urban Development representatives.

From fixed to adjustable

Demand for fixed-rate reverse mortgages, for instance, has dropped substantially since the implementation of Financial Assessment rules in 2014: After accounting for well more than half of all HECMs endorsed in 2013, fixed-rate products only represented less than 20% of all reverse mortgages the following year, with a continuing downward trend through February 2017 as demand for adjustable-rate products spiked in turn.


But the type of adjustable-rate loan has shifted in just the last few years as well. Speaking at the National Reverse Mortgage Lenders Association’s eastern conference and exposition in New York City last week, Federal Housing Administration official Karin Hill noted that annually-adjusting ARMs only accounted for 2.4% of all endorsements in 2014; in the first two months of 2017, these products represented a full 86%.

Mike Gruley, the executive vice president of reverse mortgage lending at 1st Nations Reverse Mortgage in Ann Arbor, Mich., said borrowers increasingly prefer annual adjustable-rate products amid rising interest rates.

“Many feel that if rates are likely to rise, then annual adjustments are better than monthly adjustments,” Gruley said in an e-mail to RMD, adding that consumers also generally prefer the idea of a single rate adjustment per year instead of 12.

Refinances on the rise

HECM refinance loans are eating up a bigger chunk of the total endorsement pie, according to Hill: Once just 2.6% of all reverse mortgages as recently as 2012, refi loans accounted for 11% of the total in 2016 and 12.9% of loans endorsed through the end of February 2017.

“We continue to have concerns over churning, whether the refinance provides a meaningful benefit to the borrower, and the quality of appraisals,” Hill said.

Win, lose, and draws

The proportion of HECMs with large initial cash draws has dropped substantially over time. While pulls of 90% or more are still common with fixed-rate products, borrowers aren’t tapping their adjustable-rate loans at nearly the same rate: Citing statistics from 2016, Hill noted that 61% of adjustable-rate products have draws of 60% or less.

Hill also presented data that showed a slight uptick in the average borrower age over recent years, rising to just about 72 in 2017, though she also noted that this is still lower than the average of 76 back when the program was launched.

“I think this trend really emphasizes the importance of measured access to funds over time,” Hill said, adding that early large withdrawals puts borrowers at risk of exhausting the line too early and potentially not having the funds to cover long-term medical expenses, while also putting strain on the Mutual Mortgage Insurance (MMI) fund.

Early positive signs for 2017

Hill acknowledged that endorsements were down last year, citing a 16% drop in volume and a 9% dip in the dollar value of loans endorsed. So far in 2017, however, endorsements are up about 2% over this point in 2016, with a 9% gain in total dollars.

By the numbers

  • 1,018,998 HECM endorsements from October 1, 1989 to February 28, 2017 for a total of $241.6 billion
  • 382,492 terminated loans, or $83.6 billion
  • 580,238 actively insured loans, or $144.8 billion
  • 56,412 active notes assigned to HUD, or $13.2 billion

Written by Alex Spanko

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  • Not a lot of optimism as I read the article, is there? I have my own opinions as to what could be done to improve and bring back a lot of our lost business since the implementation of FA, for example:

    I would like to see the 60% rule go away, I think that would help out tremendously. Sure, the insurance fund would not realize the 2 1/2 % on MIP when 60% is exceeded. The initial premium could go back where it was before FA, along with a lot of streamlining within HUD and FHA!

    I have always felt LESA has been to harsh! Preferably, I would like to see an escrow account established but that seems to be a “Taboo” word to lenders and servicers alike!

    Even if a 3 year set aside for T&I could be established but still allow the borrowers to pay their own taxes and insurance as well as other property charges on their own. If the borrower defaults, at least the 3 year set aside is in place and building each month because of the growth rate. Bail the borrower out the first time, the second time and three strikes, they are out!!!

    I know this does not solve the 30 year fixed rate issue but it could make the HECM ARM more attractive and easier to obtain, which in return could increase business.

    As far as the fixed rate product, why did we have to take all the borrower options away from it in the first place? Lets face it, this is what killed it!!!

    This is my take on it my friends, I am open for good old constructive criticism on my opinions!

    John A. Smaldone

  • We know from its historical context what drove the age of the average youngest borrower below 72.5 (but only to 71) was the era of Standards and Savers. It is no surprise that it bottoms in fiscal 2013 and rises beginning in fiscal 2013 until we see it is once again 72.5 by the end of fiscal 2016.

    As of February 2017, the average age of the youngest borrower is 75, based on extrapolation from Snapshot data for that month. The same data for the prior two months show that the average age is about 74 years old. What can be expected is increasing age since many seniors do not feel cash shortage the way they do by their mid 70s, particularly widows and other female borrowers.

    To see a trend that goes from 76 to 72.5 years old is hardly of much concern. Even seeing it drop to 71 years old should not cause alarms to go off. What all of this shows is that even with the support of financial advisors and builders, seniors do not seem to originate much earlier than they have for almost 3 decades.

    No mathematical proof whether by Dr. Guttentag or Dr. Pfau seems to push seniors into getting HECMs; however, higher PLFs seem to do just that. This is a further demonstration that seniors DO see a difference between the “new HECM” and prior HECMs. Perhaps they are not as “dumb” as some have painted them; they can recognize the difference in Principal Limit Factors (PLFs). Financial assessment may be making the situation even worse by making HECMs much less desirable to the point that seniors are waiting longer to originate, i.e., until they feel more “desperate.”

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