On the heels of an announcement by the Federal Housing Administration that changes are on the way for the agency’s Home Equity Conversion Mortgage program, many in the industry are wondering just what those changes will look like.
In his address of reverse mortgage participants during the National Reverse Mortgage Lenders Association annual meeting in October, FHA’s Deputy Assistant Secretary Charles Coulter didn’t let on as to the exact changes, but he did indicate they will address a rising issue of concern: the majority of fixed rate reverse mortgages versus adjustable rate loans in the marketplace.
“Among the current concerns of HUD on the use of reverse mortgage products today versus the intention of the product when it was designed, is the high percentage of fixed rate loans taken at a full, upfront draw,” Coulter said. Addressing HUD data, Coulter recalled a 69% fixed rate versus adjustable.
But originators say the balance has less to do with loan uses and more to do with borrowers’ fear of adjustable rate loans given the housing market crash.
“The majority of people are scared of the adjustable rate. A cultural misconception has led to a common belief that variable rates are bad,” said Brian Cook, an advisor from Alpine Mortgage Planning, a division of Pinnacle Capital Mortgage.
Cook, however, still sees the vast majority of his reverse mortgage business of the adjustable rate variety.
“One or two applications out of nine are fixed rates,” says Cook.
Other lenders see the balance is closer to 50/50 or varies by month.
Citing monthly figures varying from 50% to 30% fixed depending on the month, iReverse Home Loans also does not see its numbers aligning with the national average, according to Ken Klawans, company president.
“Our production does not seem to follow the 70% fixed industry-wide pattern,” he says. “If the imbalance between fixed and adjustable rates is due to the consumers uninfluenced decision to go with the fixed rate product, then the FHA’s potential changes could have a detrimental effect on the consumer and the industry,” Klawans continued.
As for the changes to the program, originators say they are in favor of a safer product but hope FHA does not go overboard in its restrictions as to deny those who need loans the most. Restrictions on the fixed rate product, though providing the market with a form of stability, would ultimately hinder borrowers’ product options for reverse mortgages, they say.
“This is a mortgage that you dictate how you want to receive it,”’ says Cook. “Adding restrictions constrains the homeowner because if you are going to require them to use the money [a certain way], then who determines that use?”
Adding to the list of borrower disclosures and documents also may not be in their best interest, says Klawans.
“More regulation, restrictions and/or obstacles is not the answer, nor is adding additional disclosure to the existing book of documents that requires borrower signatures,” said Klawans.
Written by Jason Oliva