Reverse Mortgage Originators Gear Up for FHA Product Change

Reverse mortgage originators are preparing for product change in the market that promises to turn the product mix selected by borrowers on its head. As for reeducating those borrowers on the potential uses and benefits of a reverse mortgage, however, originators are optimistic that not much is going to change for borrowers. On the other hand, it may be some originators who have to adapt most.  

Among the changes noted by Federal Housing Administration leadership: a hold on the origination of fixed rate Standard product, a financial assessment for borrowers and a potential set-aside for tax and insurance payments. 

For originators, some update may be needed for the sales process, they say, with the remaining options being a fixed rate Saver product, an adjustable rate Standard product, and an adjustable rate Saver. 

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“The elimination of the Fixed Rate Standard will force loan originators to be better educated and do a better job of offering choices to consumers,” says Lance Jackson of Castle Reverse. “…this change will favor the more financially savvy originators over those with limited financial acumen.”

It could mean more work with financial advisors, who have long approached the reverse mortgage not as a last resort, but as a financial planning tool. 

“Looking back to before we even had the fixed, I was working with financial advisors who saw the benefits of the reverse mortgage and how it can protect other assets,” says Beth Paterson, executive vice president of Reverse Mortgage SIDAC, the Minnesota division of Greenleaf Financial, LLC. “For my client base, I don’t think it’s going to make a difference.”

One concern is that if a fixed rate standard product is no longer available, the adjustable rate product will be the next-best option for some, when adjustable rate loans have gained a stigma through the bumpy years of the housing crisis. 

“The profile of a homeowner interested in a reverse mortgage won’t change as a result of the elimination of the Fixed Rate Standard,” Jackson says. “But some homeowners will opt not to go with one out of fear of adjustable rate mortgages, although sometimes this fear is misplaced.” 

That profile may be somewhat overdue for a change anyway, as the market readjusts to meet cultural differences among borrower generations. 

As for whether there will be a new “average” borrower, the answer is: it depends. 

“I tend to believe that it is the other way around,” says Mike Gruley of 1st Financial Reverse Mortgages. “HUD is changing the products, because we have already seen a different average borrower. I believe that the product that once served the Greatest Generation effectively is evolving to adapt to the needs (and sometimes the shortcomings) of the Baby Boomer Generation. The Boomers view debt differently, and the products will likely change to not only suit the borrowers needs and behaviors, but also, and more critically, to suit the budgetary guidelines of HUD.” 

Written by Elizabeth Ecker

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  • I fail to see how the elimination of the STD FX product will mitigate risk to the MMI fund if PLs remain the same for the STD VAR. Borrowers may still elect a full draw of the same or nearly same amount as the STD FX, and now the loan balance will be exposed to increasing interest rates which will only exacerbate the issue.

      • Tom,

        LIBOR has been tinkered with for years. Regulators knew about it long before any of us.

        So ask yourself why it was so important for regulators to go after it so hard in the recent past. Perhaps the answer is, bureaucrats had to justify their appropriations in the midst of the deficit and ceiling debt battles.

    • of course they can- again, I’m really baffled by so much knee jerk reaction but I’m certainly not surprised. my clients LOVE to call me about their LOC growth as if they never believed me their access to cash would grow over time

    • REVGUYJIM,

      While what you say is absolutely correct, Adjustable Rate draws within the first few years following funding normally average about 50%. Even if the average went to 80%, still that is significantly less risk than a mandated full draw product.

      • AR draws average 50% because the FR is available for full draws. Take away the FR alternative, and the ‘abusers’ will just move over and take full draw on the AR. Just watch the pct draw on AR loans move up after elimination of the FR.

      • REVGUYJIM,

        You could be exactly right; however, the overall impact to competent borrowers would be negligible since the borrower could pay down their loan at any time with no loss except accrued interest and MIP.

        With the fixed rate HECM, if the borrower paid down the loan for the excess not immediately needed, not only would there be some unnecessary accrued interest and MIP but because the fixed rate HECM has only been offered as a closed ended mortgage, the senior could not get the amount paid down back in the future if it was needed.

  • They are just ripping off seniors. If I refused to offer a fixed rate conventional loan to a borrower, telling them they had to take an adjustable, I would lose my license. Here HUD claims the fixed rate loan is a problem. It isnt. What difference will the product make if housing prices crumble? The collapse of real estate during 2006 thru 2010 is what hurt the fund. Not the miniscule numbers of reverse mortgages.

  • I hope the “purchase capability” will still be offered with the fixed program. I understand the reason to stop the program with the full draw refinance, but the program works perfectly for purchases.

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