FHA Commissioner: HECM Saver Critical to Future of Reverse Mortgage Program

During the National Reverse Mortgage Lenders Association’s annual trade show earlier this week in New Orleans, attendees learned just how important the new HECM Saver is to the future of the industry.

“If we had not been able to get the HECM saver to market, we would’ve been in a really difficult situation,” said David Stevens, Commissioner of the Federal Housing Administration during a speech in front of over 550 reverse mortgage professionals.

Facing a $250 million shortfall in the HECM program earlier this year, the administration was forced to act in order to ensure the program could continue to meet the needs of seniors looking to withdraw equity from their home.

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“I think the revers mortgage program is critically important,” said Stevens, but admitted he was worried they might lose the program due to negative economic assumptions and some in Washington who felt FHA didn’t take care of some of the risk factors.

To offset the shortfall, the administration developed the HECM Saver to provide additional cash-flow to offset any losses from the HECM Standard and not be forced to significantly lower principal limits for the second year straight.

Stevens encouraged attendees to embrace the new low cost product to ensure that FHA can keep the HECM Standard alive and thriving.

“Inability to implement the HECM Saver, is going to put additional pressure on the HECM standard,” he said.  “We’ve got a graying population, they will be knocking on the door if this is done the right way.”

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  • >> they will be knocking on the door if this is done the right way.”

    I agree and keep thinking about it but can’t figure out a way to market to that audience. I put http://www.HECMSaverReverseMortgage.com online, and it’s properly SEOed, so eventually it’ll drift to the top of google for those search terms, but that’s the only strategy I can think of. I understand HUD’s target audience, and the purpose, but haven’t figured out a good solid marketing strategy.

  • I’m quoting several right now- all very interested and its still giving folks liquidity than they can get from the bank and what a HELOC offers. This could be strong with the high net worth folks that need cash infusion but can’t find liquidity in other tax sheltered structures- especially with unrest about future tax implications after new year.

  • “Inability to implement the HECM Saver, is going to put additional pressure on the HECM standard,” he said. “We’ve got a graying population, they will be knocking on the door if this is done the right way.”

    I’d love to hear a definition of “the right way” !

  • The HECM saver is a different product geared to a different type borrower. We must look to the borrower that is not looking to max out on proceeds but wants the reverse at the lowest cost possible.

    We need to go after the borrower with plenty of equity that is looking for tax free cash or shelters. Target the borrower that he or she can use funds for purchases, re-modeling, investments or those that want an ARM to have a reserve cushion to fall back on.

    This loan can be marketed to Boat dealers, RV dealers and automobile dealerships. Each of these entities deal with seniors. They can present to their customer a method of financing their product, whereby, the borrower will have no payments and own the item being purchased out right. The program can fit many scenarios.

    John A. Smaldone

    • Despite Overt Underestimation, Certain HECM Evangelists that we hoped would long ago exit the marketplace, apparently are still living and breathing. RMD has recently published articles by longstanding HECM proponents who are concerned about Seniors running through equity they may need in later years. To have someone state in a public forum that they would seek out luxury item dealers in an attempt to drive HECM transactions for the purchase of such items greatly saddens and angers me.

      • My Opinion,

        But look at the kick off for the Saver and the remarks of the FHA Commissioner above. The Saver was designed for an entirely different segment of mortgagors than the desperate and needy. The Saver is also designed to bring the profits needed by FHA to offset the losses that the Standards are projected to produce. What is wrong with that? If it helps out the ones who obtain it, lowers upfront costs to those borrowers, and at the same time helps offset the losses from the HECMs obtained by the desperate and needy, HECM Savers should be strongly supported.

        I do not believe Mr. Smaldone is advocating that those with modest assets and low income should be using a Saver to buy a small luxury boat or a top-of-the-line luxury RV. I know him to some degree and believe his motive and suggestion are sound.

        What I am strongly against is some of the practices we have seen in the last 36 months. Lenders are making more money on each fixed rate HECM they close than several adjustable rate HECMs. Many fixed rate borrowers do not need all of the cash of a closed end HECM and would be better served by an adjustable rate HECM with a line of credit or tenure payments. In fact there is much concern that the excess funds from a closed end HECM are all but evaporating due to the same spending problems as seen in lottery winners.

        One secondary market advisor became furious when I questioned there could be problems associated with the strong trend towards traditional fixed rate HECMs. He suggested that I was advocating the elimination of all fixed rate HECMs. His dialogue was not that of concern for the borrower but rather of profits for lenders. He would not even entertain the concept of review of the proposed transactions to determine appropriateness.

        Of course, my objection has been somewhat toned down due to more upfront costs being paid by lenders, yet that does not mean the problem has gone away. In fact all we may be doing by paying down upfront costs is providing some borrowers with more of a challenge to see their excess funds dry up. This is not to say the same problem does not exist with variable rate HECMs, just not to the same degree. Yes, I strongly believe NRMLA should be condemning this practice or Congress will “help” do that for us.

      • Mr. Veale is correct in his comments. This trend, which I believe will subside somewhat with the reduction in pricing, is going to come back and hurt the industry in some way. Appropriateness or suitability should be the driving force behind our recommendations as an industry. Once again, those looking to make as much as they can, as in the subprime mess, will be in the industry short term, leaving the rest of us to clean up the mess. Congress will become involved.

  • “FHA Commissioner: HECM Saver Critical to Future of Reverse Mortgage Program” November 4th, 2010, by admin Published in FHA, NRMLA, News, ReverseMortgageDaily.com

    11.05.10 Comment to ReverseMortgageDaily.com on Article:
    “I think the reverse mortgage program is critically important,” is a quotation by FHA Commissioner David Stevens from his speech in New Orleans to 550 members of the National Mortgage Lenders Association. The question to Commissioner Stevens is: If home equity conversion mortgages, known as HECM Saver, are so valuable to the lending industry and seniors aged 62 and older, why hasn’t HUD-FHA implemented a HECM Saver package available to 429,000 owner-occupied stock cooperatives?

    As of today, the HECM Saver program is offered to qualified single-family and condominium owners, yet is unavailable to stock cooperative dwellers. Thus co-op owners—who agree with FHA Commissioner Stevens that this program is critical to their economic future—are unable to access the equity in their dwelling investment. There’s hardly any need for NRMLA lenders to “Market” to co-op owners, as those in need have been ready to buy ever since HUD directed lenders nationwide to discontinue the co-op reverse-mortgage Home Saver program in 2008.

    Unfortunately, the answer to the above question appears to be: HUD-FHA NEVER intends to implement a co-op HECM Saver package. Please FHA Commissioner Stevens, tell us it isn’t so.

    BARBARA B. HOWARD
    Cofounder HECMs for CO-OPs GROUP at Laguna Woods CA
    MEDIATION & Change Management™
    http://ChangeManager-ADR.net/ • 949 855.3990
    ====================================================

    • Barbara,
      Another well written plea.
      With the current ill will towards the Administration, I am sure if there was any reasonable way for HUD to get HECMs for co-ops, it would have been done so months ago. Again even if HUD does provide a Mortgagee Letter, few lenders have shown significant interest in providing HECMs to co-ops based on preliminary information on what such a Mortgagee Letter might contain.
      It is surprising to read that at least one originator is out taking HECM applications on co-ops. Putting false hope into seniors is not a practice any of us advocate.
      With the low value of co-ops in Laguna Woods, HECM Savers may not be the best option for co-op owners. Borrowers should carefully weigh their options if the HECM becomes available for co-ops.
      I wish you and the co-op owners in Laguna Woods the best.

      P.S. Now the originator denies he took applications, oh well.

  • I have been in the Reverse Mortgage space for 11 years. Yes… a Grandfather in this industry. I have watched people like John A. create “various scenarios” that have caused great harm to the longevity of the seniors well being. Furthermore, I have watched John A’s antics put our coveted industry under grave scrutiny, created much fear for our seniors and in his case give our respectable part of our Reverse Mortgage community a “Sub Prime Vulture” persona!!

    • RMGrandfather,

      I will not attempt to defend John. John is fully capable of doing that himself. You certainly have every right to attack what John advocates.

      What is troubling is that you leave off attacking those speaking like John in this comment to attack John on unspecified and unrelated matters. It sounds more like jealousy than his bad deeds.

      Unless you have specific accusations, your smear is little more than self-aggrandizing at the expense of Mr. Smaldone.

  • >>As of today, the HECM Saver program is offered to qualified single-family and condominium owners, yet is unavailable to stock cooperative dwellers

    Excellent point, Barbara … co-ops would be an excellent market for the HECM Saver program, and HUD would receive thousands of applications if this combination existed. I have a pile of applications from Laguna Woods Village, waiting for co-ops to be approved, and they all qualify for the HECM Saver program.

    • Mr. Denton,

      Why are you advocating the use of Savers with co-ops? How many of those applications you have taken on co-ops at Laguna Woods were for Savers?

      Who gave you the right to take applications for co-ops? At best this is a bad business practice; at worst, your taking an application on a property which is disqualified could bring the wrath of HUD. This is not the first time you have tried to make yourself look good in an inappropriate manner. In that regard, your comments on Amazon are very interesting.

      Of all of your comments, this has to be the worst.

  • Thank you for your insight Mr. Critic. I used my terminology losely and can always count on you keep a close eye on me to ensure I’ve crossed all T’s and dotted the I’s.

    I haven’t taken actual applications, I’ve provided a lot of quotes and reviewed the various programs with the homeowners in detail. Those quotes are in a pile, waiting for the Mortgagee Letter, and the homeowners are ready for me to call them, to complete the application process. Is that better?

    And yes, I feel the HECM Saver program would work nicely for co-ops – as would the other programs, depending on the homeowners needs. And I’d like to assist HUD with the program as much as possible, and after talking with many homeowners in Laguna Woods Village, feel the HECM Saver will provide a better solution then the other programs.

    Go ahead – rip it apart and blast away …

    • Raymond,

      Your “losely” rather than “loosely” provides such an interesting Freudian slip in itself that there is little need to go on.

      How are you going to assist HUD with Savers? Our primary fiducary duty in California is to help seniors, not harm seniors to assist HUD. I guess those you “advise” will have to trust your “fiduciary” feelings.

      • rainmand,

        It is totally different for someone to correct his/her own significant (or any) errors BEFORE someone else points them out than it is for someone to consistently change significant errors because someone else (especially the same person) sometimes points them out. You should know by NOW that I am willing and prepared to point them out and yet you seemed determined to keep “chumming the waters.”

        It seems to be a habit to promote yourself using some “interesting” tactics. Even Amazon.com had to edit out some of the information you provided in one particular review because of apparently violating their business promotion rules. The Amazon editor left enough intact to make it fairly clear what you wrote and why it was edited out. This is not a matter of merely crossing t’s and dotting i’s. You may consider things of this nature little more than oversights and errors but some take them far more seriously.

        I have never brought up anything that you did not post on a public forum. I am not that interested in what you do. I do care for how you represent the industry in public forums. Just remember chum eventually attracts sharks even of the “Great White” variety. I’m sure you remember the expression of shock on the face of Roy Schneider in Jaws when the shark appeared as he was chumming.

        It is very easy to read your RMD comments and your profile on DISQUS. It is also easy to follow a link from your DISQUS profile to a Bank of America declaration stating a significant claim in your profile is no longer true. I never imagined it would be linked. Either what you wrote on your DISQUS profile is right or Bank of America is. I’m sure you will “clarify” the situation.

        Compared to HUD, I should be little more than a minnow carrying a sign warning: “For your own sake watch out what you write, it can come back to bite you.” Mr. Raymond Denton, you have some unusual writing “practices.”

        rainmand, I would prefer commending you on what you write. Not long ago, reversemaniac and I went at it tooth and toenail. I heard and read many negative comments on the situation between us at that time. Now a year later, he/she and I join in agreement far, far more than we ever disagreed. I have never met the reversemaniac, yet I now look forward to reading his/her comments. I would hope you and I could reach such harmony but that will never occur if you keep adhering to the same level of care in presenting facts— but then again maybe you do not care.

  • The HECM Saver’s time hasn’t yet come. It will gain traction only after homes have begun to appreciate and owners are able to pay off existing debt with a smaller reverse mortgage.

    At this time, many of our prospective customers cannot repay their existing mortgage with a HECM Standard, or they must bring funds to the closing table to make it work.

    • HECM Dude,

      As to that 2% segment to which our industry has successfully provided reverse mortgages, your comment is on point. However, looking at the broader market there is a huge segment for whom HECM Savers would be very valuable, especially the variable rate option.

      With the desperate image HECMs currently have, market resistance is high. It will take a different kind of marketing to change that image.

  • It is interesting to read the comments in this thread. For example, the remarks of John are on point but his suggestions were the marketing ideas from the heyday of proprietary reverse mortgages; to some degree they work. Wealthone helps explain why they will work.

    The problem comes from comments like those of Raymond Denton (or rainmand). His idea about Google will reach a large segment of seniors which have yet to be penetrated but I question if Saver will stir up the appetite of that segment. I think the collapse of Golden Gate Financial, an extremely well capitalized broker, clearly showed the fallacy of relying on the Internet as a huge source of loans.

    Kevin hit the true marketing dilemma of the day when he asked for the definition of THE (all caps — mine) right way?

    It is my view that none of the strategies suggested will significantly penetrate the potential Saver market. If those are the only methods which work, then we will see perhaps a 5% increase in volume from this potentially rich source.

    Although I agree to many projections ascribed to John Lunde, I do not agree with the target dates. For example, I do not see Savers composing over one-half of all HECMs endorsed in the next 3 to 5 years. My estimates are we will see that kind of volume 6 to 8 years out with far less growth in the Standard than we have historically experienced that is until 2013; however, beginning in FY 2018 we could see the number of HECMs endorsed rise 3 to 4 times what they were in FY 2008.

    Like noted in a prior thread, I am watching two of the banks, which had representatives on the small HUD committee which brainstormed the Saver, start marketing in the way it will take to effectively grow out the Saver. Even though individual originators have been successful with the technique, no retail unit of a lender has to date. Expanding that marketing technique will be critical to the growth of Savers. There is a subset of that technique which has been developed in the South and could be far more successful and effective than even what these two banks are trying to accomplish.

    • I’ll stick to just the portion of your comments pertaining to our recent forecast of 2011 HECM volume. I’m curious if you have seen the Census 2009 American Housing Survey (I think RMD recently posted a link)?

      The path to HECM Saver overtaking Standard in volume terms is painted very clearly there in my opinion. There were 250K self-reported reverse mortgage borrowers, alongside 1.5 million 65+ age HELOC borrowers (with an average balance of $50K).

      With the HMBS execution option providing a government guaranteed securitization option that HELOCs can’t match, I believe Saver interest rates will be very competitive with HELOCs, with greater payment flexibility as well. Hard not to like Saver displacing a huge chunk of HELOC borrowing by seniors over the next 3-5 years.

      Although I could be optimistic and interpret your comments to mean that you think HECM Standard volume is going to go up even more than those HELOC numbers would suggest? I’d be happy to be wrong on the forecast by virtue of Standard doing more than 1 million units over next 5 years! 😉

      • John,

        Sorry to be so slow. I had a lot of work yesterday.

        Here is my convoluted prediction from above: “For example, I do not see Savers composing over one-half of all HECMs endorsed in the next 3 to 5 years. My estimates are we will see that kind of volume 6 to 8 years out with far less growth in the Standard than we have historically experienced that is until 2013; however, beginning in FY 2018 we could see the number of HECMs endorsed rise 3 to 4 times what they were in FY 2008.”

        I conservatively estimate the total volume at 350,000 in 2018, perhaps as much as 450,000. I estimate Savers will be 50% of total endorsements for that fiscal year but not before. I believe there are several factors which will hold the Saver volume down, one of which is the prejudice that HECMs are loans of last resort. Another is a higher encounter with CPAs and attorneys who will “lock and seal all of the doors and secure the windows with storm shutters.”

        John, don’t take me wrong. I like your numbers. I am hoping you are right and my numbers are as good as Speaker of the House Pelosi’s prediction the week before the election when she declared that the Democrats are in good shape to KEEP the House. Here’s hoping you are as correct as polls showing the Republicans walking away with at least 60 new seats in the House.

  • Please excuse my lack of understanding of the “Saver” (what does it save, the borrower, the lender, the FHA, all?). However, my gut feeling is that this is a product that is ripe for tie in sales. The successful marketer will start out with product a (probably a financial product) and merely use the Saver as the funding source. The tail wagging the dog, if you will. Just sayin, not agreeing.

    • dduck12,

      Great to see you once again.

      FHA will only charge 0.01% upfront on the maximum claim amount (“MCA”) on a Saver, not the traditional 2% of the MCA charged on the Standard. The MCA is the lesser of the FHA lending limit (now $625,500) or the appraised value of the home.

      For example, if the home is appraised at $700,000, the upfront FHA mortgage insurance cost on a Standard is $12,510 but on a Saver, only $62.55.

      So what is the catch? The Saver offers much lower proceeds than the Standard. So the Saver is not really designed for those who need every dollar a HECM can provide. It is designed to be a very low risk mortgage for those who need some help or want some at a relatively low upfront cost. As the investment community warms up to it, it should be a very good cash management tool for a lot of seniors.

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