Industry professionals meeting in California last week at the National Reverse Mortgage Lenders Association’s “Road Show” considered issues ranging from “How to Grow Your Business in a Sluggish Economy” and “New RESPA Rules” to “The Future of the Wholesale/Broker Relationship” and “Ethical Pricing.” Beyond such periodic discussions, the daily challenge for practitioners in the field is how to keep reverse mortgage recipients current on the multiple expenses that accompany their loans.
Far from an obligation-free transaction, reverse mortgages require seniors to make timely payments for property taxes, hazard insurance and repair costs, the last overseen by HUD as part of the HECM program. On-scene professionals say keeping up with such costs has grown more difficult for seniors as their property valuations and investment portfolios have shrunk and insurance fees have risen, especially in many of the traditional retirement locales, often situated in areas subject to hurricanes, fires, flooding and other weather extremes.
“The reverse mortgage senior is facing high property insurance [charges] and taxes,” says one servicer. “A lot of people no longer have the money for T&I [taxes and insurance]. That’s a challenge for us in the reverse space [because] we have to work with borrowers on repayment plans; most of us have had to develop ‘mini loss mit units’ to put customers on payment plans.”
Predicting servicer losses of all kinds, including those resulting from T&I defaults, will depend on good data. About that, Michael McCully, partner, New View Advisors, says that “one of the big topics in the industry today is T&I defaults and understanding with some transparency what that data looks like. The inquiry must focus on: ‘How does an industry price a product?” He explained that “without access to historical data on the cost of servicing defaulted loans, establishing reserves for those future losses is difficult. As a result, issuers and investors must make conservative assumptions to compensate [thus] hurting pricing.”
According to McCully, “the same logic extends to prepayments’. We’re working on prepayment data…to allow investors to understand how to project future prepayment speeds on reverse mortgages. Without historical data, investors make conservative assumptions, further hurting pricing.”
Such nagging financial issues will continue to be critical topics of discussion, during and after industry gatherings.
Written by Neil Morse