Reverse Mortgage For Purchase Challenged By Falling Home Values

The HECM for Purchase program, which allows seniors (age 62 or older) to purchase a new principal residence using loan proceeds from a reverse mortgage, may be impeded by declining property values and insufficient “comps” or comparable price comparisons.

“We can’t do HECM for purchase right now,” says Robert Griffin of Griffin Financial Mortgage, LLC in Fort Worth, Texas, explaining that “declining values make it harder to do such loans.” In certain parts of the country like Florida, “Appraisers are having a hard time finding comps” due to a paucity of sales, according to Griffin, whose company expects to close about 400 reverse mortgages this year around the country.

“The bane in the mortgage industry is the steady free-fall in real estate values,” adds Dennis Haber, executive vice-president, Agency For Consumer Equity. “The torment being felt in the reverse mortgage industry occurs when the appraised value of the subject property falls short. This is particularly distressing to seniors who envision a move into that new home with a HECM reverse mortgage,” Haber remarks.

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One long-time reverse mortgage originator points to a larger issue. “The April appraisal guideline changes have caused appraisers to over-react, taking present values even lower than necessary, in the name of ‘future declining valuation analysis’, to avoid fear-based potential future liability regarding their valuation.”

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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  • ““The April appraisal guideline changes have caused appraisers to over-react, ” Can anyone shed further light on these apparent changes?

  • Let’s turn back the clock about one year ago.

    Many had just absorbed the fact that HERA (PL 110-289) was slated to reduce the maximum origination fee computation. The rational was that despite the new schedule, new business from HECMs for purchase, a single (and higher) national lending limit of $417,000, expanded manufactured home eligibility, and HECMs for coops would more than offset any loss from lower maximum origination fees. This prediction was made despite the slated loss of the so-called HECM advisor program. Few, if any, were yet discussing what the impact that the HERA mandated reduction to mortgages owned by Fannie Mae would be on our industry.

    One year later, our total endorsements are only slightly higher than last year at this same time yet the maximum origination fee prior to November 1, 2008 of $7,255.80 is now only $6,000. The number of HECMs originated for homes with values above $362,790 is not near what was projected [despite the increase from the HERA lending limit of $417,000 to the ARRA (PL 111-5) lending limit of $625,500]. It is rumored that much of the so-call HECM advisor originations which supposedly involved higher valued homes have been replaced by telephone sales with home values of less than $100,000. We have no HECMs for coops or expanded manufactured home volume. The number of HECMs for purchase has been less than spectacular.

    So where is all of this projected increase in sales volume that AARP pointed to as part of the rational why our origination fees should be reduced? Will AARP initiate or even just support a return to the prior origination fee structure with even a $7,255.80 maximum cap?

    Our lowered origination fees are not the fault of HUD. I grind my teeth every time someone in our industry puts the blame on HUD. As an AARP/IRS income tax volunteer, the position of AARP is not only deplorable but it has forced a few of the more senior centered originators out of the industry and into better paying jobs. If the economy were better I am sure even more would be gone.

    AARP was wrong then. Now they have the opportunity to correct that wrong. Will they support a much needed increase in the HECM origination fee structure? It is time to test the integrity of AARP to see if they will correct what they changed through HERA.

    While we are requesting a permanent increase of the lending limit to $625,500 plus increases for inflation, we should also readdress the origination fee schedule either in a single piece of legislation or if strategically better in two. One year of mandated lost revenues justified by faulty predictions is long enough. As one long time reverse mortgage veteran told me: “Let market competition correct what seniors pay in origination fees,” not some seemingly “well intentioned” crusader at AARP.

  • Appraised values and substantiating those values with comps is perhaps one of the biggest obstacles senior homeowner face in either purchasing or refinancing their existing homes with HECMs. However, not all areas of the country are severly impacted by declining property values. The HECM purchase program for many parts of the country is a viable alternative that will allow senior homeowners the ablity to utilize and preserve assets if they are considering downsizing or relocating to a senior retirement home community of their choice.

  • “u201cThe April appraisal guideline changes have caused appraisers to over-react, ” Can anyone shed further light on these apparent changes?

  • Letu2019s turn back the clock about one year ago. rnrnMany had just absorbed the fact that HERA (PL 110-289) was slated to reduce the maximum origination fee computation. The rational was that despite the new schedule, new business from HECMs for purchase, a single (and higher) national lending limit of $417,000, expanded manufactured home eligibility, and HECMs for coops would more than offset any loss from lower maximum origination fees. This prediction was made despite the slated loss of the so-called HECM advisor program. Few, if any, were yet discussing what the impact that the HERA mandated reduction to mortgages owned by Fannie Mae would be on our industry.rnrnOne year later, our total endorsements are only slightly higher than last year at this same time yet the maximum origination fee prior to November 1, 2008 of $7,255.80 is now only $6,000. The number of HECMs originated for homes with values above $362,790 is not near what was projected [despite the increase from the HERA lending limit of $417,000 to the ARRA (PL 111-5) lending limit of $625,500]. It is rumored that much of the so-call HECM advisor originations which supposedly involved higher valued homes have been replaced by telephone sales with home values of less than $100,000. We have no HECMs for coops or expanded manufactured home volume. The number of HECMs for purchase has been less than spectacular. rnrnSo where is all of this projected increase in sales volume that AARP pointed to as part of the rational why our origination fees should be reduced? Will AARP initiate or even just support a return to the prior origination fee structure with even a $7,255.80 maximum cap? rnrnOur lowered origination fees are not the fault of HUD. I grind my teeth every time someone in our industry puts the blame on HUD. As an AARP/IRS income tax volunteer, the position of AARP is not only deplorable but it has forced a few of the more senior centered originators out of the industry and into better paying jobs. If the economy were better I am sure even more would be gone.rnrnAARP was wrong then. Now they have the opportunity to correct that wrong. Will they support a much needed increase in the HECM origination fee structure? It is time to test the integrity of AARP to see if they will correct what they changed through HERA. rnrnWhile we are requesting a permanent increase of the lending limit to $625,500 plus increases for inflation, we should also readdress the origination fee schedule either in a single piece of legislation or if strategically better in two. One year of mandated lost revenues justified by faulty predictions is long enough. As one long time reverse mortgage veteran told me: u201cLet market competition correct what seniors pay in origination fees,u201d not some seemingly u201cwell intentionedu201d crusader at AARP.rn

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