Yahoo! Presents a “Personal Take” on the CFPB’s Reverse Mortgage Report

“With great power comes great responsibility,” a Yahoo! column published this weekend begins. The column, which presents a “personal take” on the Consumer Financial Protection Bureau’s recent reverse mortgage report, addresses the forecasted prominence of reverse mortgage products and developments on the horizon that should lead to market growth. 

Yahoo! contributor RJM Terrado writes:

“According to the CFPB’s report, reverse mortgage, popularly known as Home Equity Conversion Mortgage (HECM), has yet to reach the vast market of eligible senior homeowners. In 2010, only around 3 percent of the 24 million qualified senior homeowners availed the program averaging about 70 thousand newly originated reverse mortgages a year.

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Some developments are, however, expected to change the trend.

Firstly, reverse mortgage-qualified baby boomers are growing in numbers. From the estimated 24 million in 2010, it is up to 32 million in 2012. That’s a 33 percent increase or additional 8 million qualified senior homeowners in two years.

Secondly, the report released by the Office of the Chief Actuary in May regarding the possibility that the Social Security Administration may not be able to live up to its promised benefits brought some chilling effect. Seniors, financial planners and even organizations into retirement research started looking for ways to prepare for the coming of this anxiety-causing event.

The third development is tied with the second one. After Social Security, home equity is the largest asset of a typical senior in the country. With the hope of addressing the Social Security’s pending deficit, a growing number of financial and retirement planners started looking at reverse mortgage closely and acknowledged its potential to boost retirement preparedness.

With attentions from the media and investment professionals, consumer protection concerns arise. It is from this phase that the CFPB’s report was conceived.”

View the full article at Yahoo.com

Written by Elizabeth Ecker

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  • Since approximately 20% of all HECMs have terminated and not all were due to death, not only should borrowers with HECMs still outstanding be interviewed but also former borrowers.  The CFPB is absolutely right to ignore survey results of those who have been borrowers for less than a few years.

    Like others have stated, the CFPB failed by not surveying HECM borrowers and need to correct this flaw in their report.  

  • Unlimited Growth Potential?
    What might Congress do about HUD’s insuring authority?  What might Conventional Reverse mortgages look like?  Will they be substantially less generous?  What about the smaller equities in Boomer’s homes and how might that affect eligibility?
    How might investors of the future view these smaller more risky mortgages?
    Might the program implode under the weight of its own popularity?

    • hecmvet,

      Some of your questions are valid.  BUT your statement that the program “might … implode under the weight of its own popularity” is not only questionable but it is far too provocative.

      In the manner which HERA of 2008 restructured the HECM program under the Mutual Mortgage Insurance (“MMI”) fund and HUD has infused that fund with over $2.2 Billion in allocations from the MMI Capital Reserve fund along with raising ongoing MIP to 1.25%, how is that you believe, the HECM portion of the MMI fund is currently in danger of imploding?  While it is possible (like the accidental death of Misty May Treanor during her next beach volleyball match at the olympics), it is very HIGHLY unlikely.  

      First it will be years before the estimated losses from the outstanding pool of HECMs will mature into actual cash losses.  

      Second it is not its popularity will cause the HECM fund to implode but rather home values.  If home values were rising by 20% annually for the next 10 years, do you really believe the outstanding HECMs would make any trouble for FHA?

      Finally the HECM is not nearly as popular as it once was.  On that account, I wish you were absolutely and unquestionably right. 

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