Chart of the Day: HECM Standard vs. Saver Initial Cash Draw

The initial first month cash draw for the HECM Standard far surpasses the first month cash draw for HECM Saver loans, a recent chart created by the Department of Housing and Urban Development depicts.

With the saver first month draw at 46.4% of the initial principal limit and at 80.8% for Standard loans, the comparison is stark.

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Of all Saver loans, more than 85% are adjustable rate loans. For the Standard loans, the percentage skews toward the fixed rate variety at around 67% for 2011 to date, HUD data showed.

The initial principal limit draw data first appeared in a presentation by HUD’s Karin Hill, director of the Office of Single Family Program Development, before attendees of the Texas Mortgage Bankers Association Reverse Mortgage Day in Houston in early September.

Written by Elizabeth Ecker

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  • This chart is rather misleading and provides minimal information.  Fixed rate HECMs hide what is actually going on. Anything meaningful has to be calculated or cannot be derived. 
     
    Based on the partial information provided, 33% of the Standards being adjustable rate, the percentage of initial draw to principal limit percentage on those adjustable rate Standards averages 42%.  With 85% of the Savers adjustable rate, their initial draw rate averages 37%.  It would seem more adjustable rate Standard HECMs should be Savers.  Could the answer be compensation or the inability of some lenders to provide the less costly Saver at a profit?
     
    If this is going on in California, can those lenders and originators who provide adjustable rate Standards and are governed by the Department of Corporations or Department of Real Estate be found to be violating their fiduciary duty?  Unless there is a clear need for the Standard over the Saver, the answer could be a resounding yes.
     
    What question this chart does not answer is if the percentages are evenly distributed based on the value of the home?  If not, are the higher percentages skewed toward higher or lower valued homes?  If toward lower valued homes with no further data, it would seem the risk to the MMI Fund would be lower but if vice versa, one would need further a further breakdown between those loans with Maximum Claim Amounts lower than the lending limit and those equal to the lending limit.
     
    The one thing which the chart clearly demonstrates on its own is the high percentage of Savers which are adjustable rate.

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