Is Private Insurance For Reverse Mortgages on the Horizon?

The Mortgage Bankers NewsLink published an interview with Marc Helm, CEO of Reverse Mortgage Solutions where he discusses the current state of the reverse mortgage industry. 

At the end of the interview, Helm talks about different efforts that are underway to develop a private market for reverse mortgage products.  Specifically, Helm says that one company has approached a major insurer about writing private mortgage insurance on reverse mortgages and the insurance company is interested.   

The privately insured product would have a lower LTV than the current HECM program, but for borrowers with higher home values, it can offer a great alternative.  Below is an excerpt from the interview.

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MBA NEWSLINK: The reverse mortgage concept developed slowly but now seems to be taking off. What will accelerate or impede future growth?

MARC HELM: The greatest accelerant is the current economy. Many of the people who thought they were all set for retirement and would be able to stay in their homes and pay all their bills–while drawing on Social Security and other retirement funds–now are saying, “I’ve got problems.” They never thought they would have to tap the equity in their homes just to get by, but they are going to have to with reverse mortgages.

Also, now you have baby boomers who have lived their whole lives on credit beginning to reach Social Security eligibility and they will be more comfortable with a reverse mortgage to help maintain the lifestyle they’ve become accustomed to. The market has been expanding as a result of increased FHA lending limits, now ranging from $417,000 to $629,000. Many people who didn’t have an interest in a reverse mortgage, because their first mortgage balance was so high, are becoming interested now that they can get more equity out of their homes.

On the negative side, the largest single obstacle to growth in reverse mortgages is the limited secondary market, aside from Fannie Mae. When Reverse Mortgage Solutions came into being two years ago, Wall Street and some large banks were actively doing HECM [Fannie Mae’s Home Equity Conversion Mortgages] loans and proprietary products, holding them in portfolio. But there’s not really any proprietary product out there for new originations today. So, it’s back to HECMs, which are being primarily sold to the only conduit out there, Fannie Mae.

If the government ever restricts Fannie Mae on its originations or its lending limits, or if Fannie starts having the kind of losses where it would have to change its pricing module, or quit buying so much, that could further restrict the market. And although Ginnie Mae is securitizing reverse mortgages, there are various risks for the issuer of Ginnie servicing because of the back-end servicing losses that might restrict a Ginnie security based upon supply in the market–if issuers have to take big losses they won’t issue, then investors won’t have a product to buy.

NEWSLINK: What advice would you give to a lender thinking about entering this sector and to consumers considering getting a reverse mortgage?

HELM: More lenders need to get involved with reverse mortgages because there’s a need for the product and fewer barriers to origination, such as qualifying a borrower’s credit. So, if you want to diversify your lending business in these tough times this is an excellent product to supplement your base. It does involve educating the senior borrower about how they can get their loan approved and receive funding. There is mandatory counseling required of the borrower by a HUD-approved counseling agency.

The actual approval process isn’t as difficult as it is for a forward mortgage because no underwriting is required. However, lenders need to understand the nuts and bolts of the process. We tell lenders that when they first start talking to a prospective consumer it might take six months to close the deal or the senior and family might not come back to you for 18 months.

For seniors with equity in their home who are willing to pay the upfront and ongoing fees, a reverse mortgage is safer and better than a HELOC [home equity line-of-credit] because with the latter, they have to make some type of monthly payment. The great thing is if you’ve worked hard all your life and still don’t have your house paid for this may allow you to eliminate your mortgage payment and also have a credit line on the house. All they have to do is pay their annual property taxes and insurance, occupy the home and maintain the property.

To read the rest of the interview check out the link below.

Q/A with Marc Helm of Reverse Mortgage Solutions

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  • Nice article. Has there been any past experience with private insurance? Would the borrower be subject to increasing premium rates? Would there be
    a cap? Would this mean each state insurance department would have to approve the product? Etc.?

  • This idea is not new. How is it that private insurance will attract investors? If the reverse mortgage industry is having problems attracting investors to FHA insured HECMs, it is hard to believe that privately insured proprietary reverse mortgages will fare better.

    What is the attraction? Fannie Mae has driven up HECM margins to where some HECMs have margins equal to several of the proprietary reverse mortgages originated throughout 2007 and early 2008. Will the insurance features themselves be so superior to the features on HECMs that investors will value them more? Or will the margins be so high that when indices return to more typical rates, balance dues will quickly exceed market values?

    While the idea is intriguing, the goal is attracting investors not just providing reverse mortgage products seniors will buy.

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