The growing competition between government and the private sector, seen often now from health care to financial reform to environmental issues, has spawned a derivative discussion in the reverse mortgage sector where professionals differ on how much influence each will exert in coming years.
Pertinent to funding this niche product, one view holds that the 20-year-old HECM is a durable standard, destined for its own senior longevity, while an opposing view posits that proprietary reverse mortgage product backers need to get involved for any meaningful growth to occur.
Arguing the proprietary side, Bart Johnson, president/CEO, Life Stages Financial Inc., says “events have conspired that begin to invite private products back into the market.” However, Johnson concedes that “the percentage of home value available to borrowers under the HECM product is effectively higher than the LTV curves that private investors can offer with proprietary products (thus borrowers receive more dollars with HECMs than with private products).”
HECM headwinds are blowing stronger, though, and Johnson notes several occurrences that will propel proprietary products forward in years to come, especially as demand exceeds government appetite (and budget). They include Fannie Mae’s mandated reduction to its balance sheet; and several steps recently taken by the FHA – such as reduction of principal limit factors and an increase mortgage insurance premiums – portending further restriction of government financing.
One industry watcher, with a penchant for statistical analyses, expresses “optimism about a reduced HECM role” and suggests that it will “eventually be a positive for the industry,” but not before some pain. “I very much believe we’ll have major upheaval in the short-term,” he predicts. “My guess would be at least one major lender will leave the business, and possibly half of all brokers will be eliminated with volume shrinking back to 50 percent to 60 percent of its 2008 peak, before getting better.”
Written by Neil Morse