We know reverse mortgage change is coming. We’ve heard it before and we’re hearing it louder now that an independent audit of the Federal Housing Administration’s finances shows the agency is in the red by a measure of more than $16 billion.
Accounting for $2.8 billion of that negative net worth, its reverse mortgage program will now need changes.
As recently as October, well before the results of the audit were published, Department of Housing and Urban Development Deputy Assistant Secretary Charles Coulter told attendees of the National Reverse Mortgage Lenders Association annual meeting that there were several very specific problems to be addressed through program change in short order.
We had heard it before.
In fact, I can remember back to early 2011, during my first-ever interview with FHA. At the time—18 months ago—then-deputy assistant secretary for single-family housing Vicki Bott outlined a time frame for publishing a financial assessment meant to stem the number of seniors who were in default from failure to pay their taxes and/or insurance.
I recall vividly what Bott told me at the time: That changes were coming quickly and a financial assessment proposal would be published within 45 to 60 days. Let’s just say: we’re still waiting.
Six months after Bott’s comments, Karin Hill, director of HUD’s Office of Single Family Program Development said lenders did not need to wait for HUD on policy changes to implement their own additional underwriting for tax and insurance measures. “There’s nothing wrong with that,” Hill told a conference of regulatory professionals.
“There’s nothing to say they can’t do it now.”
One lender—MetLife—worked to prompt change.
Acting quickly, the company moved forward with implementing their own financial assessment requirements. The bank saw reverse mortgage volume drop—so much so, that within two months the company pulled the plug on the change and reversed course. Can’t fault them for trying.
As a result of the audit’s findings published last month, the FHA now says that the program now calls for “blunt” changes. That could mean restricting the use of reverse mortgage products; limiting the amount of proceeds that a borrower can receive through the loan; or eliminating some products altogether.
The changes on the table stand to be much more restrictive than underwriting changes that would, by definition, eliminate some borrowers from qualifying for the program.
Following the actuarial review, FHA has outlined several specific potential program modifications including consolidating the fixed rate standard and fixed rate saver programs, reducing principal limit factors, restricting the use of the fixed-rate full-draw payment option and a financial assessment of borrowers.
Unless HUD gains more authority from Congress to manage the reverse mortgage program, these changes are imminent and they would make a serious impact on business.
It’s important to understand that HUD is making these suggestions based upon an independent analysis that includes many different factors and assumptions that some have called too extreme.
One group of industry analysts who said the audit was “too rosy” last year have now come out to say that the 2012 audit was too far negative.
But even if the results are somewhat debatable, the message is clear: Changes are coming for real this time. It’s time to face them.
This edition of RMD Report is brought to you by Landmark, a leading national appraisal management and compliance company serving the reverse mortgage lending industry.
Written by Elizabeth Ecker