American Banker: Reverse Mortgages Need More Competition

Lack of competition, rather than issues with lenders, originators, or the loans themselves is the real problem plaguing reverse mortgages, writes mortgage banker Richard Booth in an American Banker article this week. 

Refuting an earlier column on the topic, reverse mortgage should not be compared with “exotic” loan products of the past, Booth writes, but it does face a challenge in now few competing products are in the marketplace, leading to unnecessary costs to the consumer. 

“Reverse mortgages are expensive loans for consumers,” Booth writes. “… With their losses mounting in recent years, attributed to low down payment lending, the FHA has been forced to raise their mortgage insurance premiums multiple times in recent years.


What this niche, but growing market needs is more non-government-backed lending. Competition will drive down costs for consumers. In order to accomplish this, the regulatory environment for originating and servicing must become more investor-friendly or they will continue to sit on the sidelines.”

Current changes being worked on by FHA will help to resolve some issues that may be discouraging servicers from entering the market, he says, but private lenders will be the essential component to market growth and popularity of the product. 

“Today, baby boomers are entering retirement with outstanding mortgage loans fueling the demand for this product. They are a wonderful financial tool and enable homeowners to remain in their homes and live with dignity,” Booth writes. “Lenders who do not offer reverse mortgages are missing out on an opportunity to interface with their aging customers. We need to encourage private lenders to return to the market. Until that occurs, the FHA will need to fill the gap.”

View the American Banker article

Written by Elizabeth Ecker

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  • He hits the nail right on the head! Between the cost structure and the regulatory compliance burden of this product it would greatly benefit from conventional competition. We won’t know until we seriously investigate the conventional opportunities and limitations. One thing is for certain, this program CAN exist without HUD’s involvement.

    • Are you serious? We already found out in 2008 what it took for the providers of proprietary products to dump our market including MetLife and Bank of America. There is no supply without HECMs.

    • hecmvet,

      Wow!! What about ye olde Financial Freedom? It ain’t here anymore. The author is suggesting a current solution not some incorrect dream of the past.

      (This is a reply to your 7/11/2013 reply which has yet to be officially posted.)

      I do not remember any of the current (the emphasis is on current) TPIs or lenders named Financial Freedom (FF) providing any proprietary products uniquely provided and offered through its retail and wholesale units to the market place. In fact it left the industry and the origination of the FF proprietary products once offered have never been heard from since. Or as John Lunde, the president of Reverse Market Insight stated in a Reverse Mortgage Daily article dated August 3, 2011: “What’s driving the downward trend? The exits from Bank of America, Wells Fargo, and Financial Freedom, which together accounted for about 35% of the market….”

      Even the FF “industry famous” Cash Account was never designed to be competitive to HECM or an alternative to it; it was always presented to the industry as a “jumbo” reverse mortgage. FF was also once a broker for the FNMA Home Keeper which in limited circumstances went head to head with the HECM and was a better option in those situations; usually those circumstances involved a low lending limit (when the FHA HECM lending limit differed by designated communities) or property type of collateral not permitted by FHA. FNMA terminated any new origination of that product back in late 2008. Today those of us familiar with that loan look back on it as a very useful limited niche product.

      My challenge to you is to explain how FHA could drop the HECM program TODAY and our industry would not notice its loss. What is our alternative today to the HECM? None of this caveating that if we only know that after investigating the issue. Most lenders and financial institutions who have looked into have found absolutely no current answers. The lenders who are active in our industry have never stopped looking into that issue in fact at NRMLA conferences throughout 2007 there were embarrassing sessions in which industry leaders declared that by 2010 HECMs would be about one quarter of our business due to the types and sheer numbers of proprietary products moving into the industry. They were also wrong.

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