FHA’s HECM Saver Roll Out a Success? For Some

Only a few months after the release of the HECM Saver in October 2010, the new product is gaining traction with some lenders, while others are just starting to turn their attention to the low cost reverse mortgage product.

Different than the Federal Housing Administration’s HECM Standard, the Saver provides consumers access to a reverse mortgage product without the traditional upfront costs associated with the loans.  Dubbed by some in the industry as the “HECM Savior”, many hope it could help reach a new group of borrowers – consumers without mortgage balances – and compete directly with a traditional home equity line of credit.

Four months after the release, judging the success of the product has been difficult due to limited endorsement and application data from Department of Housing and Urban Development.  The first batch of data released shows that 19 HECM Saver loans were endorsed in November and 75 units in December.

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Not easy to get excited about those numbers, but MetLife Bank surprised and shocked many when it told RMD that almost 20% of its business is coming from the HECM Saver.

It was the first encouraging sign the HECM Saver was starting to catch on and RMD soon learned that other lenders like Genworth Home Equity Access are having success with the product as well.  The Rancho Cordova, CA based lender told RMD it has seen the share of HECM Saver applications increase from 8% in December 2010, to 19% of retail applications for January.

“We see the HECM Saver as a great opportunity to reach new customers who may not have considered a reverse mortgage before due to its fee structure,” said Pete Engelken, President of Genworth’s reverse mortgage division.  “We’re also seeing more interest in the HECM Saver from HELOC consumers as HELOCs are more difficult to obtain these days.”

While larger lenders are having success out of the gate, brokers aren’t having the same results.

“I see it being a benefit in the product mix, but I’m not sure if it will be a huge boost to the industry, especially with the appraised values that we are seeing,” said Jack Belles, President of Reverse Mortgage of New England.  The company hasn’t closed a HECM Saver yet, but they’re not alone.  Live Well Financial, a  wholesale reverse mortgage lender told RMD it’s seeing the HECM Saver slowly catch on with brokers.

“Since the closing costs are greatly reduced, this product is likely to be the first step at cracking the adoption challenge for 62 and older homeowners with no mortgage existing mortgage,” said Brett Ludden, Senior VP of Live Well Financial.  “My primary concern is the risk that there will be attempts to quickly refinance HECM Savers into HECM Standard.”

It’s a concern shared by many investors and is part of the reason pricing is so different from the HECM Standard.  Due to the lack of performance data on the product, interest rates on the HECM Saver remain higher and back end premiums are small or non-existent for many.  Therefore, brokers will need to move back to an upfront origination fee based model and considering the challenging marketplace, it’s not something many are interested in doing right now.

“The economics of offering the HECM Saver is different and brokers need to realize that if the secondary market execution is lower, they’re going to need to change their model,” said Jason Levy, Guardian First Funding Group. “Lenders will need to re-write their sales process and re-educate their loan originators.”

If execution in the secondary market remains weak, brokers will need to generate additional volume in order to make it a legitimate business.  Companies like Guardian — which runs a call center based model for retail — seem to be a good fit but Levy said the company hasn’t started to promote the HECM Saver through the Robert Wagner brand yet.

“It’s very hard to target one product to the mass media which is why we have to deliver a message that we’re going to educate the consumer on reverse mortgages and give them options.”

One challenge for brokers is that many banks and large lenders are offering the HECM Saver without an origination fee.  “Brokers can compete if there is some type of draw,” said Cliff Auerswald, loan originator at All Reverse Mortgage Company (ARMC).  The company has closed three HECM Saver loans so far and has another two in progress.

If most of the HECM Saver loans are adjustable rate with a line of credit —like it’s reported to be— there isn’t much they can do if there is no draw taken at closing.  “It’s difficult for a broker to compete when the banks can originate those scenarios at zero origination fees,” he said.

When banks hold onto the loans, they can make money on future draws, something brokers don’t have the ability to do.  “We do include the Saver when we educate our customers and have found some for whom it makes sense and for whom we could offer competitive scenarios,” said Auerswald.

But it isn’t stopping wholesalers from educating brokers on how to be successful offering the product.  Genworth told RMD it’s starting to train brokers on the benefits of the product and provide insight into how to effectively target consumers.

“Because the HECM Saver compares very favorably with a HELOC, we have developed a side by side comparison that brokers can use in presentations with their customers,” said Engelken.  “In the coming months, we expect to launch additional sales and marketing tools for brokers exclusively focused on the HECM Saver.”

While it’s still too early to judge whether the HECM Saver has been a success, initial results from lenders show it’s starting to catch on and that’s encouraging news for the industry.  Why?  Because the program plays in important role from a budget standpoint as well.

Last year, HUD requested $250 million from Congress to offset projected losses in the HECM program.  Without that money, HUD would’ve be forced to significantly cut the principal limits for the second year in a row.  Instead, HUD worked with the industry to develop the HECM Saver, which not only offers a low cost product to consumers, but was also designed to help offset the risks associated with the HECM Standard.

The agency has been very vocal about the need for the HECM Saver to be successful to ensure no additional cuts to the HECM Standard are necessary.

“Your ability to operate the HECM Saver and use it as much as you possibly can will enable us to keep the Standard alive and thriving,” said David Stevens, FHA Commissioner during a speech last year at the National Reverse Mortgage Lenders Association’s annual trade show.

During an interview with RMD, Stevens said the more successful the HECM Saver becomes, the less likely it’s that the HECM program will need additional support from Congress.

“With more fiscally conservative views coming out of Congress, we need to be very careful and make sure the HECM Saver gets up and running, because it will be much harder to receive government subsidies for mortgage products,” he said.

 

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  • In the article the one thing which is a potentially real problem for the Saver is the higher turnover rate that the secondary market and many in our own industry believe it will end up having? It is not the actual rate which is a problem near term but rather the perception of what that rate will be. The arguments on this subject will only grow with intensity until there has been sufficient data to determine what the actual situation is; that takes time.

    But if the feared turnover rate ends up being reasonably accurate, why did so many in our industry support the idea of eliminating the upfront MIP on all HECMs and placing all of it on rate used in calculating the monthly MIP charged on the balance due, not that long ago? For those unfamiliar with the situation, the proposition was to drop the upfront MIP to the level of the Saver, increase the rate of the MIP charged monthly to take up the loss of the upfront MIP but keep the principal limit factors the same after the change as before it. There was little if any consideration for turnover rates back then. Yes, there was only one product during much of that period but in the middle of all of that up popped the fixed rate product which took the industry by storm.

    Some may argue that it was because there was only one outlet for the industry back then, Fannie Mae. But again even after Ginnie Mae stepped in to facilitate the sale of HECMs as HMBSs, the argument was still being strongly advocated by many in the industry. It is only since the advent of the Saver that argument has died down.

    Yes, part of the problem with the Saver is that the expected turnover will come as a result of borrowers needing to step up to the Standard some time in the future because of the lower principal limit factors of Savers but some of it is also from the concept that lower upfront fees will draw in more seniors who are only looking for temporary solutions. It is this latter segment which would have been a problem if HUD had agreed to lower the upfront fees on the traditional HECM back in 2006 (or prior).

    NRMLA fought long and hard to get the lower upfront MIP structure with higher monthly MIP but with the same (not lower) principal limit factors. If HUD had agreed to it back in 2006, would the market have enjoyed the high level of HECM acceptance by the investor community as it did not that long thereafter? Maybe the real “savior” of the industry over the last few years was the decision of HUD not to move forward on the reduction of the upfront MIP until the creation of the Saver.

    Perhaps this turn of events will cause those advocates of lower upfront MIP to realize the flaws in their arguments. But to reach that conclusion one must be persuaded that those advocates will see the problem and learn the lesson. As a cynic, I am NOT prepared to reach that conclusion.

  • In the article the one thing which is a potentially real problem for the Saver is the higher turnover rate that the secondary market and many in our own industry believe it will end up having? It is not the actual rate which is a problem near term but rather the perception of what that rate will be. The arguments on this subject will only grow with intensity until there has been sufficient data to determine what the actual situation is; that takes time.

    But if the feared turnover rate ends up being reasonably accurate, why did so many in our industry support the idea of eliminating the upfront MIP on all HECMs and placing all of it on rate used in calculating the monthly MIP charged on the balance due, not that long ago? For those unfamiliar with the situation, the proposition was to drop the upfront MIP to the level of the Saver, increase the rate of the MIP charged monthly to take up the loss of the upfront MIP but keep the principal limit factors the same after the change as before it. There was little if any consideration for turnover rates back then. Yes, there was only one product during much of that period but in the middle of all of that up popped the fixed rate product which took the industry by storm.

    Some may argue that it was because there was only one outlet for the industry back then, Fannie Mae. But again even after Ginnie Mae stepped in to facilitate the sale of HECMs as HMBSs, the argument was still being strongly advocated by many in the industry. It is only since the advent of the Saver that argument has died down.

    Yes, part of the problem with the Saver is that the expected turnover will come as a result of borrowers needing to step up to the Standard some time in the future because of the lower principal limit factors of Savers but some of it is also from the concept that lower upfront fees will draw in more seniors who are only looking for temporary solutions. It is this latter segment which would have been a problem if HUD had agreed to lower the upfront fees on the traditional HECM back in 2006 (or prior).

    NRMLA fought long and hard to get the lower upfront MIP structure with higher monthly MIP but with the same (not lower) principal limit factors. If HUD had agreed to it back in 2006, would the market have enjoyed the high level of HECM acceptance by the investor community as it did not that long thereafter? Maybe the real “savior” of the industry over the last few years was the decision of HUD not to move forward on the reduction of the upfront MIP until the creation of the Saver.

    Perhaps this turn of events will cause those advocates of lower upfront MIP to realize the flaws in their arguments. But to reach that conclusion one must be persuaded that those advocates will see the problem and learn the lesson. As a cynic, I am NOT prepared to reach that conclusion.

  • Does the Saver have to be comparable to a HELOC to be successful? Does a return of a favorable HELOC market spell doom for Savers? It was quite telling to read: “We’re also seeing more interest in the HECM Saver from HELOC consumers as HELOCs are more difficult to obtain these days.”

    The focus of this comment is on the long-term source for the origination of Savers. Jason Levy is right that retraining will be needed. That is very obvious but the question is for what?

    It is my belief that the long-term market for Savers is neither the no-or-low mortgage balance due senior homeowner nor the HELOC marketplace. Those are the ideas of those with a strong mortgage background. It is these very concepts that will keep Savers at low volumes.

    So where do some of us see the growth coming from long-term? It is from the financial and legal community which serves the more affluent senior community. It certainly will not come from those advisors serving the most affluent because they simply will not need it to any extent at all. There is a slim chance that they have an appetite for their clients when it comes to proprietary products but do not count on that to any degree at all.

    Yes, it is the younger active wealthier senior who seems best suited for the product. They will need to overcome their natural aversion to tying debt to their homes but they are generally more prone to reach that conclusion. They generally need cash in short spurts because of business cycles. They are better educated and are more financially astute and focused than many in our own industry. Getting through the advisers is the big challenge and quite frankly, the current origination core as a whole is not prepared to do that and why should they? Most do a great job as providers of mortgages directly to the senior market which is probably something the new origination core would be miserable at.

  • Does the Saver have to be comparable to a HELOC to be successful? Does a return of a favorable HELOC market spell doom for Savers? It was quite telling to read: “We’re also seeing more interest in the HECM Saver from HELOC consumers as HELOCs are more difficult to obtain these days.”

    The focus of this comment is on the long-term source for the origination of Savers. Jason Levy is right that retraining will be needed. That is very obvious but the question is for what?

    It is my belief that the long-term market for Savers is neither the no-or-low mortgage balance due senior homeowner nor the HELOC marketplace. Those are the ideas of those with a strong mortgage background. It is these very concepts that will keep Savers at low volumes.

    So where do some of us see the growth coming from long-term? It is from the financial and legal community which serves the more affluent senior community. It certainly will not come from those advisors serving the most affluent because they simply will not need it to any extent at all. There is a slim chance that they have an appetite for their clients when it comes to proprietary products but do not count on that to any degree at all.

    Yes, it is the younger active wealthier senior who seems best suited for the product. They will need to overcome their natural aversion to tying debt to their homes but they are generally more prone to reach that conclusion. They generally need cash in short spurts because of business cycles. They are better educated and are more financially astute and focused than many in our own industry. Getting through the advisers is the big challenge and quite frankly, the current origination core as a whole is not prepared to do that and why should they? Most do a great job as providers of mortgages directly to the senior market which is probably something the new origination core would be miserable at.

  • Cliff makes a good point on lower origination fees from banks on ARMs. Wells Fargo has been charging no origination fee on ARMs. How? The losses on those are being offset with the huge revenues (rebates) it keeps on fixed deals. The Fed’s April 1 ruling will allow banks to out-price and out-advertise small businesses because their revenue will be much larger on an identical loan. Further evidence of the Fed’s lack of understanding of the business and/or blantant intention to support the big banks at the expense of small businesses.

    • Lance,

      The Fed has little or no concern about any other institutions than those they otherwise deal with. While some in the industry have shown great pleasure with the CFPB being supervised by the Fed, that may be good for the FDIC lenders but few others.

      It is becoming very apparent that some of those who provide services to the industry are attempting to hide what is actually happening within the industry. One in particular has left off describing the interaction of the top lenders with the remainder of the industry to describing how things look on a per lender basis.

      There is little question that the industry is now dominated by the largest lenders and the situation is only getting worse.

    • Lance,

      The Fed has little or no concern about any other institutions than those they otherwise deal with. While some in the industry have shown great pleasure with the CFPB being supervised by the Fed, that may be good for the FDIC lenders but few others.

      It is becoming very apparent that some of those who provide services to the industry are attempting to hide what is actually happening within the industry. One in particular has left off describing the interaction of the top lenders with the remainder of the industry to describing how things look on a per lender basis.

      There is little question that the industry is now dominated by the largest lenders and the situation is only getting worse.

  • Cliff makes a good point on lower origination fees from banks on ARMs. Wells Fargo has been charging no origination fee on ARMs. How? The losses on those are being offset with the huge revenues (rebates) it keeps on fixed deals. The Fed’s April 1 ruling will allow banks to out-price and out-advertise small businesses because their revenue will be much larger on an identical loan. Further evidence of the Fed’s lack of understanding of the business and/or blantant intention to support the big banks at the expense of small businesses.

  • My small business has yet to originate a HECM Saver. This probably is because we’re located in California, a state with depressed home values. Most of those who inquire with us about a reverse mortgage cannot be helped because their debt is too high, relative to the principal limit available to them.

    Regarding the Fed rule that goes into effect April 1? Maybe we’ll close up shop and go to work for one of the banks…

    • HECM Dude,

      Driving seniors into Savers will require more than passive methods. It will require an aggressive marketing program directed at the correct audience. The current method appears to require large amounts of capital to warehouse Savers at the lender until balances due will provide profits through sales into the secondary market.

      But there is absolutely nothing wrong with increasing your market share using Standards. The worst thing that experienced originators can do is be overly concerned that they are not getting their fair share of Savers. We are still in the experimental stage with Savers.

  • My small business has yet to originate a HECM Saver. This probably is because we’re located in California, a state with depressed home values. Most of those who inquire with us about a reverse mortgage cannot be helped because their debt is too high, relative to the principal limit available to them.

    Regarding the Fed rule that goes into effect April 1? Maybe we’ll close up shop and go to work for one of the banks…

  • This morning I met a prospect for the Saver in Southern California. The couple has a free and clear home worth approx. $750k who is wishing to complete a $200k home addition. They plan on repaying the borrowed funds within 5 years from an expected inheritance and found the Saver to be attractive for its lower upfront financed fees and flexible credit line, they don’t like to carry debt. They had applied at their bank of a traditional HELOC and were declined for a 2yr old out of state foreclosure the homeowner states as a failed construction loan for investment. (FNMA guidelines are 3yrs) The marketing approach of Saver vs Standard won’t work; there is an opportunity to compete directly with the traditional HELOC’s out there. No Income or credit score requirement, make a repayment IF and WHEN you want, it could be a no brainer if we can figure out how to make it as simple as possible to understand. The problem sometimes with this crowd is the word “reverse mortgage” itself. It’s like a light switch to this type of borrower. I agree with the mass media, it would be positive both getting the word out on the Saver and improving the image of the standard.

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