New FHA Reverse Mortgage Product Will Help Reach Different Customer

NewImage.jpgDespite reverse mortgage volume being down 40% during the first half of the year, John Lunde, President of Reverse Market Insight tells BankRate that he believes sales are going to pick up when the new HECM Lite product is rolled out.

According to Bankrate:

the FHA is now developing the “HECM Lite,” which would compete with regular home equity lines of credit. The proposed HECM Lite would have no upfront mortgage insurance payment and a 1.25 percent annual insurance payment on the amount of money actually borrowed. Loan limits would be substantially lower than the original HECM plan.

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BankRate is reporting that the Federal Housing Administration expects to release the product after Oct. 1st, which has yet to be reported by any FHA official.  RMD contacted HUD to confirm and Lemar Wooley, spokesperson for HUD, said “We are working on it, but I’m not aware of any announced a roll-out date.”

When the product is eventually rolled out, Lunde believes it “will appeal to a different — and probably better-heeled — customer who only wants to pull out a little cash now and then and expects to pay it back when his cash flow is a little better.”

Lunde isn’t the only one who believes the new product will help expand the business.  RMD recently reported about how some believe the product could expand demographic appeal of reverse mortgages, but others aren’t so sure.  Vote in the poll below and let us know whether it will help volume increase.

FHA to offer new reverse mortgage

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  • The new product may be good for homeowners. How will it help loan officers? Compensation would be minimal while man hours no different from today.rnrnWho would the investors be?

  • Upon entering into the industry, optimism was climbing at what seemed like a 60 degree angle. At meetings throughout the country, originators boldly declared: u201cYou donu2019t sell HECMs. HECMs sell themselves.u201d It was as in vogue to say in the industry as u201cgroovyu201d or u201cout of sightu201d among hippies and u201cthe love childrenu201d in the late 60u2019s and early 70u2019s. In the last 18 months, each has been heard in the industry almost as frequently as the others.rnrnWhile we are going through a period of adjustment, there is also a sense of realism in the rather lukewarm reception for the HECM Saver. With homes u201cunderwater,u201d home values depressed, more aversion to mortgages, and smaller principal limits, the apparent market for these products is far smaller than the market appeared to be in 2007 for proprietary products (the latter lasting far less time than the glory of the Edsel).rnrnSo why is there a lackluster reception? Some of it can be attributed to not knowing what the actual products will look like. Some of it can be chalked up to more cynicism about the future of the industry. And some reflects doubt that those who are targeted will accept the product because of the additional layer it will take to go through to gain approval u2013- the financial gatekeepers.rnrnSuch gatekeepers, which includes attorneys and CPAs, are among the most knowledgeable financial advisors who somehow are the least educated about reverse mortgages generally and are among the most resistant. Some members of the industry seem terrified by these gatekeepers. Members feel that marketing to these gatekeepers will not just waste money but also will consume a great deal of time with no result. Without proper training for originators, this assessment seems very realistic; worse, it could be self fulfilling. No one has yet offered any approach which has panned out except when it comes to marketing to those who sell insurance and financial products.rnrnSo are we prepared to market these products? Can we explain how their clients will be benefited other than through having additional cash available?rnrnSo rather than the focus being on the product, the microscope will be more on us. Calling debt proceeds u201ctax-free incomeu201d has a much more hollow ring when marketing to the financial gatekeepers. Now it is time to really learn the complexities of our products. While the product has not changed much from the days it could sell itself, we must change to be able to present it to a different audience, one that is not nearly so indulgent as the perceived average customer in 2006, u201cthe 74 year old widow.u201d Either we will open doors or they will remain shut to the industry; the product will no longer achieve this objective by itself.

    • Well, Critic, I agree with you. Who will step up and offer a real approach to make this product a success? It certainly cannot be those who offer “loans of last resort.” Who in the industry will get off of our collective lazy duffs and really analyze what this product can produce?nnI await the outcome . . . . One thousand and one, one thousand and two, one thousand eight hundred, three hundred thousand nine hundred and fifty . . . . Ready or not, here it comes!

  • My thought is that it is beneficial whenever the government is taking the time to promote additional facets to the reverse mortgage industry. Expansion should help us more than cutting down the product lines.nnAlso any additional education or advertisement of government backed loans can serve to dispel myths associated with the reverse mortgage industry.nnRealistically, I agree with The Critic that the market for reverse mortgage lites will be small – how many of our borrowers just want a ‘little’ bit of funds for a minimal time with the intention of repaying soon thereafter?

  • It certainly would seem to be an excellent product for Bank of America and Wells Fargo to offer at no cost. rnrnUntil I can locate an appraiser, sorry AMC, that will work for free, a credit reporting company that will issue credit reports for free, a flood cert company that will issue a flood report for free, a doc service that will produce loan docs for free, an Escrow company that will work for free, a title insurance company that wonu2019t charge for a policy, a county that offers free recording fees and a free MERS with every with every loan offer I wonu2019t be able to compete. rnrnClearly a no cost HECM credit line will be a hit with borrowers that donu2019t have a mortgage and donu2019t need a credit line but, because itu2019s free and itu2019s offered by their bank, or any bank for that matter, theyu2019ll be happy to have one. After all, HECM Lite, just like Bud Lite, doesnu2019t have an annual fee. The borrower wonu2019t incur an annual MI cost because the loan will have a zero balance! Just wait until the Banks offer a zero cost zero payment HECM credit line as a second mortgage behind a first that they service. You’ll hear about it when you receive you mortgage statement and notice a “Free Credit Line” insert. Perhaps that product will be called the Bank of America or Wells Fargo HECM Net Zero, the no cost, no annual fee credit line that doesnu2019t require a payment. The next version will be the Net Zero debit card that allows you to access you credit line from over three hundred thousand ATMu2019s world wide. rnrnHECM Lite, itu2019s about time! rn

    • Ken,rnrnI do not understand where you are coming from. What do you mean no cost? Interest and ongoing MIP has been and always will be a cost.rnrnWhat about fixed rate? While your response is a reaction, it makes little sense other than describing your frustration about adjustable rate HECM Savers.

  • I can foresee some abuses like grab a quick loan from BOA and jet to Vegas.nIn addition to this product, I’d love to see a HECM Income lite (tenure only). nIn any case careful underwriting could make either a good pooling investment.

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