Applause greeted a recent FHA public mention of possible flexibility in the HECM program that would permit borrowers to pay fees only for the reverse mortgage amounts they desired.
Described as the “HECM Lite”, the proposal laid out by Colin Cushman, director of portfolio analysis at HUD, would feature no mortgage insurance premium upfront and only 1.25 percent annually with lower principal loan factors (a.k.a. “pay as you go”).
Cushman said the shift is being considered because “HECM is in a budget box due to differences between long-run house price growth-rate assumptions – used in the original PLF table calculation (4 percent) – and assumptions now being used for the federal budget.”
One industry veteran who likes the proposal is David Peskin, chairman of Guardian First Funding in Melville, N.Y., who tried a similar approach in a proprietary product called “Simple60,” with a former firm. “It was a good idea because it was not as expensive for someone who wanted to get access to less money,” Peskin explains. “Today, you pay fees on the full [mortgage] amount, regardless of whether you use it.”
He says, “anytime you have multiple options for the borrower it’s an advantage to everybody. Right now, the reverse mortgage is a needs-based product and most people want as much money as possible.” The Simple60 product “never got full momentum,” Peskin tells RMD, because “by the time we launched it, the secondary [funding] market had dried up.”
Shannon Hicks, vice-president, product development for Reverse Fortunes, sees the “HECM Lite” as a step in the right direction. “What remains to be seen is the effect of a 1.25 percent annual MIP in conjunction with the real possibility of increasing interest rates in the future,” Hicks says. “The real advantage of such a new product,” in his view, “is its ability to provide future liquidity while managing the loan balance and preserving future equity from an otherwise larger rising loan balance.”
Michael Gruley of 1st Financial Reverse Mortgages sees the prospective product as being aimed at “those folks who have little or no mortgage balance on their home.” Given today’s smaller PLFs, the lower MIP costs might be “just the trade off consumers are looking for in those instances.” Gruley suggests, however, that “since the funded amounts would be so low, origination fees likely would be necessary in some form, which could counter-balance the lower MIP.”
Written by Neil Morse
Note: A previous version of this article described the “HECM Lite” and HECM mini as the same thing. It’s not the same product, we apologize for any confusion.