FHA Changes Will Force Reverse Mortgage Industry to Adapt

The biggest challenge the reverse mortgage industry faces is finding the opportunity in changes the Department of Housing and Urban Development (HUD) is making to its reverse mortgage program.

Speaking at the Texas Mortgage Bankers Association’s Reverse Mortgage event in Austin, Tx., Peter Bell, the president of the National Reverse Mortgage Lenders Association said it’s critical for the industry to adapt. Rather than be used as a tool to help during a criss, HUD’s reverse mortgage is being retooled as a long term financial planning tool and the industry must adjust.

“FHA is trying to encourage borrowers to tap their equity slowly and steadily,” he said.

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Starting October 1, borrowers will receive roughly 15% less in proceeds and have restrictions on how they can use the funds for the first year.

During his speech, Bell said that six companies in the industry are working to commit $30 million over the next five years to launch the largest communications campaign ever for the association. While the details are not yet finalized, the concept under discussion focuses on using reverse mortgages as part of a comprehensive plan to help those during retirement.

While the changes made to the Home Equity Conversion Mortgage Program are significant, there is a possibility that after fiscal year 2014, principal limits could be adjusted upwards.

“We will have the opportunity to engage in dialogue with HUD, and maybe have the chance to change things later,” said Bell. “It would not surprise me that if we continue to see improvement in the economy, we could see principal limit factor adjustments in the coming years.”

Written by John Yedinak

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  • The words of Mr. Peter Bell are the most positive and reassuring about the changes to date. We are at a definite crossroads and need to realize that our future is not found in our past.

    It is time we de-emphasize aging in place and realize our future lies in the purpose clause of the HECM law. Unfortunately some misinterpret the terms used in the law. Subsistence is not modified by any adjective such as minimal, basic, or fundamental. No doubt that was done because subsistence means different things to different people. For example, for one of my clients subsistence, health, and housing required over $27,000 (in 1998 dollars) per month and for another $2,500 per month.

    Just because originating HECMs to the segment of seniors who rely on financial professionals is more difficult, it is not impossible. It requires a better knowledge of our products and financial principles impacting the senior community during retirement. It means presenting not only fixed rate HECMs but adjustable rate as well.

    (The opinions expressed may not necessarily be those of RMS or its affiliates.)

  • The reverse mortgage industry will survive and adapt, we always do. It’s time to look forward to the changes and be glad that FHA has determined that this is a viable program. We will not be able to help everyone, but we can help some.

  • Increase in PL? I thought they were temporarily increased currently. If anything I’d expect HUD to lower them and for the conventional market to pick up the slack.

    • Mr. Jackson,

      I believe Mr. Peter Bell was saying the reductions going into effect on October 1 could be adjusted higher later down the road based on better housing economic conditions.

      • After re-reading his comment I see that’s what he said, so thanks for correcting me. My point is that the Lending Limit is temporarily increased. I agree with Dennis Hemm’s comment above though: the industry will adapt.

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