WSJ: Reverse Mortgage Change Is On the Way

With reverse mortgage changes on the way, those who are thinking about applying can still qualify under the old rules, writes the Wall Street Journal this week. 

The new rules could mean less money for borrowers but also reducing the default rate under the program, after authority has been granted by Congress for the Federal Housing Administration to make its desired modifications. 

The Department of Housing and Urban Development has alluded to the substance of the changes, though details are forthcoming in a mortgagee letter expected by September 1.

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“Regulators plan to merge the two types of reverse mortgages on the market today: the “standard” loan, which currently allows borrowers to tap from 56% to 75% of a home’s appraised value, depending on their age, and the “saver” loan, which currently pays from 4 to 16 percentage points less,” WSJ explains. “The agency has yet to announce the new limit.”

Citing input from National Reverse Mortgage Lenders Association President and CEO Peter Bell, the WSJ notes most homeowners will be able to borrow less than previously under the Standard program, but more than they would have been able to borrow under the Saver program. 

“Regulators also plan to cap the amount many borrowers can tap during a loan’s first year,” the article notes. 

Assuming for a 60% first-year cap on the upfront draw, WSJ outlines a scenario in which a borrower could borrow $105,000 of a $175,000 loan under a fixed rate option, with an adjustable rate borrower being able to access to the $70,000 balance in later years.

Read the WSJ article

Written by Elizabeth Ecker

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  • I remember arguing with the pessimists and optimists in our industry back in 2010 about the impact of lower Principal Limit Factors (“PLFs”). The optimists were mindlessly looking to 100,000 endorsements for fiscal 2010 and the pessimists were picking only negative assumptions to arrive at about 36,000 endorsements. My own projection was 10% too high. That result is very much in line in my personal outlook in life. Even cynics can be on the optimistic side of realistic. At the time, my views were condemned by the optimists as negative and by the pessimists as over the top optimistic.

    Roy,

    FHA is NOT “technically insolvent.” What the actuaries show is that all HECMs endorsed after September 30, 2008 but before October 1, 2013 are estimated to terminate with a net loss of over $2.8 billion in terms of discounted cash flow as of 9/30/2012. HUD is saying that it expects the loss will be about $5.2 billion as of 9/30/2013 for the same endorsements plus those HECMs endorsed during fiscal 2013 in terms of 9/30/2013 dollars. Yet that is but one small component of HUD.

    So while one might talk about the need for HUD to draw down from Treasury to support the portion of the HECM program in the MMI Fund in the future and an allocation of the current budget to the MMI Fund to cover its projected negative net position as of 9/30/2013, much of other talk about HUD insolvency is less than rational.

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