Reverse Lenders Applaud Program Reform, But Impact Unknown

Congress’ passing of the reverse mortgage stabilization bill last week was a critical turning point for the industry, many of which applaud the decision, but now await with bated breath for the actual changes to arrive.

“Congress sent the message that they believe our industry can make a difference, and that HUD and industry stakeholders have the character and the will to reshape the reverse mortgage product into something that can work for everyone,” said Mike Gruley of 1st Financial Reverse Mortgages. “The bill’s passage was a public affirmation of our mission and a strong vote of confidence at a time when it may have been easy for Congress to say ‘no.’”

Celebrations aside, sometimes the worst part of change is not the change itself, but rather the uncertainty prior to the event, Gruley added.

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“From a business perspective, it is difficult to say what lies ahead until we know specifically what the changes will be,” he said.

While it is not entirely clear what the Federal Housing Administration (FHA) will do with its newly granted authority, the industry will just have to wait until the changes are implemented via a mortgagee letter the agency said it will be releasing later this month.

“The devil will be in the details and there remains the potential that one of those details could be worse than losing the Standard ARM product,” said John K. Lunde, president and founder of Reverse Market Insight.

For months, the industry has been awaiting the decision from Congress to grant the Federal Housing Administration authority to stabilize its Home Equity Conversion Mortgage (HECM) program, after an independent audit in November revealed the agency’s HECM portfolio was valued at a negative $2.8 billion.

Since then, FHA has taken steps toward shoring up its losses with several program changes, the most notable of which was the elimination of the Standard Fixed-Rate reverse mortgage product in April of this year.

The agency has also asked for Congressional authority to make program changes via mortgagee letter, rather than having to go through a lengthy rulemaking process.

Changes outlined by FHA to stabilize the HECM program include set asides for borrowers to meet tax and insurance payments, restrictions on the amount borrowers may be able to withdraw, as well as including all borrower spouses on the loans.

Although there is still time to adjust between the mortgagee letter slated to arrive at the end of August and the expected implementation date of October 1, uncertainty remains as to how the implemented changes will affect volume production moving forward.

“We need to know what they’re actually going to change before there’s any reasonable hope of knowing how it will impact volumes,” Lunde said. “[We’re] waiting for them to put out mortgagee letters detailing changes.”

Written by Jason Oliva

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  • “From a business perspective, it is difficult to say what lies ahead until we know specifically what the changes will be,” This is true but a more realistic quote would be ” We know this is going to hurt volume but we won’t know how much until a year after the changes are put in place.”

    My guess is Reverse Mortgages will become a niche product and there will definitely not be enough volume for everyone currently in the industry from lenders to LO’s. I guess the worst case scenario was for HUD to shut down the program completely.

  • “Congress’ passing of the reverse mortgage stabilization bill last week was a critical turning point for the industry, many of which applaud the decision, but now await with bated breath for the actual changes to arrive”

    This statement is nonsense. Since Congress is in recess, the Presidential pocket veto is now in play and unless the President signs the bill into law before Thursday, per the quoted sentence “the critical turning point” is little more industry myth. Per the staff at Representative Heck’s office on Tuesday, the Representative was told formal signing will take place today 8/9/2013 although the official White House schedule does not reflect it.

    To understand the Presidential pocket veto, please see my comment at http://rmdaily.wpengine.com/2013/08/09/stifel-financial-launches-reverse-mortgage-business-targets-national-growth/#more-19360. As of the writing of this comment, the referenced comment is waiting posting.

    (The views expressed are not necessarily those of RMS or any of its affiliates.)

  • I agree with Jim Veale 100%. the statement he is referring to is complete nonsense. I doubt if we will see it come to fruition.

    I also have doubts if this will be good for the industry, in fact, I see many problems on the horizon with the entire proposal.

    We don’t have all the details yet, as usual, however, from what I have seen and heard, the price may be a heavy one that we will have to pay when it is all said, done and over with!

    John Smaldone

  • UPDATE:

    NRMLA has announced that earlier this afternoon the President signed H.R. 2167 into law.

    Congratulations to all those who have worked so hard to see this bill become law.

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