HECM Saver: The Impact of FHA’s New Reverse Mortgage Program

The Department of Housing and Urban Development is expected to roll out the HECM Saver in the coming weeks, no one knows what sort of impact the HECM Saver will have on the marketplace.

Designed to address one of the biggest complaints of reverse mortgages, the HECM Saver offers borrowers less money at a lower cost.

When it’s rolled out, the product will reportedly have a 0.01% upfront mortgage insurance premium and 1.25% annual MIP.  Much lower than the 2% upfront MIP and 1.25% annual MIP charged to HECM Standard borrowers. In theory, lowering the upfront costs should expand the number of reverse mortgages borrowers, but the industry isn’t so sure.

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According to a poll of over 200 RMD readers, 36% of respondents said the HECM saver will boost reverse mortgage volume, while 44% are unsure.  Only 20% said the product will not increase reverse mortgage volume.

Chart: HECM Saver Poll

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HECM Saver Poll

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With reverse mortgage volume down 40% during FY 2010, lenders hope the product will reach new customers.

“We are looking forward to introducing a new product that will broaden the marketplace,” said Jeff Lewis, Chairman of Generation Mortgage.

In order to do that, the industry will need to move away from its “bread and butter” – a consumer looking to pay off a large mortgage balance – so a shift in who the product is marketed to is likely.

Those behind the development of the HECM Saver hope it will reach consumers with low or no mortgage balance, who traditionally turn to a HELOC for smaller financing needs.  This has always been a consumer the industry has wanted to reach, but the upfront costs of the traditional HECM made it incredibly difficult.

HECM Saver Economics

The economics of offering the HECM Saver pose challenges to reverse mortgage lenders, especially smaller brokers.  With smaller loan amounts, lenders will see less revenue per transaction compared to to the traditional HECM product. Meaning, don’t expect traditional HECM Fixed premiums for the HECM Saver.

“This would seem to move the industry further away from the individual loan officer as center of gravity,” said John Lunde, President of Reverse Market Insight. Thus, providing “additional advantages to call center and online models that can scale affinity partnerships with financial and non-financial institutions that don’t desire to directly enter the business.”

If the HECM Saver doesn’t see much in terms of volume, Lunde said it could become a relationship product offered by banks and other financial institutions.

“They have funding capacity and can afford to earn incremental revenues from the product over time as draws occur, rather than current period income needs of brokers and primarily transaction oriented organizations,” he said.

While no one knows when the “official announcement” from HUD is coming, it could take some time before the industry sees how the HECM Saver plays out.

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  • How can you originate a reverse without any costs, including the UFMIP? I understand using the YSP to offset the origination fee and the other costs, but there is not enough YSP to cover everything. How do you do it, Mr Revers?

  • It seems to me that the advantage of the HECM Saver program is only with an adjustable rate loan. There is no reason to use this for the fixed rate. As Mr Reverse states, these loans already have lowered closing costs. I have a few clients who have their homes paid off and don’t need a lot of money but would like to get a little safety net. These clients are put off by the closing costs of an adjustable rate HECM but don’t want to take all their cash out with the fixed rate. nnI will try to sell them on this loan when we get more information on it.

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