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.
“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