Originators Get Ready for Reverse Mortgage Changes Ahead

Originators face a rocky road ahead as the federal reverse mortgage program undergoes a substantial overhaul, but many remain optimistic for what could be the rainbow after the storm: a more sustainable product that’s safe for lenders and borrowers alike.

That gain, however, will likely take some pain to achieve, perhaps felt most acutely by originators tasked with selling a very different product to a smaller pool of eligible borrowers.

“This is a positive thing going forward, but how long it will take to be a positive thing in public perception—that’s the unknown,” says Mike Gruley, director of reverse mortgage operations at 1st Financial Reverse Mortgages. “If it takes too long, it could turn out to be detrimental to the survival of the product. But we’ll have to see. It’s going to have to keep evolving.”


The introduction of a financial assessment for borrowers, effective January 13, along with an approximately 8% cut in principal limit factors, effective September 30, are expected to cause “significant changes” in the industry landscape.

“It probably is going to reduce significantly the number of loans that get done,” says Steve McClellan, CEO of Urban Financial. “The industry is still trying to evaluate that. No one has a complete handle of that yet, but preliminary estimates say volume could be off by 30-50%.”

Once all the changes are implemented in January, a reduction in origination volume of up to 50% for some lenders is “not unrealistic,” says Lance Jackson, president and CEO of Castle Financial, Inc.

The lower loan-to-value ratio being implemented October 1 could potentially cut out about 20-25% of volume for his business, he estimates, while the financial assessment slated for January could drop out another 25%.

“If the penetration rate for reverse mortgages does not improve and we don’t reach a greater audience soon, we’re going to see volumes decline,” agrees Gruley, who points to a penetration rate that has been stuck around 2% for years, according to some industry estimates.  “As an industry, our future is in the 98%.”

The accelerated timeline for the changes to take effect is another challenge.

“My perception is that many in the industry are reeling a bit from the changes to the program and the velocity with which these changes are to be implemented,” says McClellan. “These changes are going to really cause some significant shake-up and shake-out in this industry.”

The speed with which the industry is being asked to implement the changes will create some stress, he says, as it deals with a “whole host” of challenges including new disclosures, new documentation requirements, and approvals.

“We recognize that the implementation period is short,” says Lemar Wooley, spokesperson for HUD, in an email to RMD. “However, HUD is committed to doing everything it can to ensure all questions from the industry are fully addressed and we are focused on making the transition October 1.”

While most agree the changes will be challenging, many are optimistic for the future. Home prices are expected to continue to appreciate, which could be a mitigating factor, lenders agree.

“Long term for the product, as long as the financial assessment isn’t too draconian, it’s good,” Jackson says of companies who are “willing to stick it out.”

Ultimately, the fundamental need for reverse mortgages still exists, especially with thousands of seniors reaching retirement age each day for the next decade or so, McClellan points out.

“HUD needed to do these changes, although I’m not sure this is the silver bullet that gets us [to where the product is widely accepted],” says Gruley. “The program needed this. It’s painful for everybody, but it needs this.”

Editor’s note: A previous version of this article had incorrect dates for when the HECM program changes and financial assessment would become effective. We regret the error.

Written by Alyssa Gerace

Join the Conversation (2)

see all

This is a professional community. Please use discretion when posting a comment.

  • The industry needs to reinvent the loan officer/originator, salesperson, flunky, dimwitted zealot who has just lost the product he believed in aiming at the 2% (1% soon) who were listening to him/her and no longer qualify. Let’s see — where do we start? Come January, 2014, some ideas might evolve. Probably not now.

  • The future of the MMI Fund is one discussion when it comes to the changes which will take place less than one week from now and the future of HECM lenders quite another. The truth is future HECMs will not be as toxic to borrowers or the MMI Fund as HECMs are now.

    As to borrowers, we saw many who defaulted on property charges who should have never taken a fixed rate HECM Standard at the time they did. When the market was up they had equity before they got the HECM but today because of market conditions they have no equity and are in danger of losing their homes, a double whammy. When the market was falling and it was easily foreseen, the market was not turning, why did they did get a fixed rate HECM? Why not downsize with a HECM and lock in their equity rather than taking on new debt with its upfront costs?

    Then there is the MMI Fund. Others are better versed in it than I but as to HECMs it is a mess. How the immediate changes will ameliorate the losses coming from prior endorsements has not been explained but it seems unlikely they can. The changes will only lessen the risk of loss occurring in future endorsements not those before September 30, 2013 and only for those with case number assigned after September 28, 2013.

    As to the industry, it is not the loss in closings which will do the most harm but rather the loss in revenues which will hit the hardest. If John Lunde is right and we see loss in unpaid balances of 49% or more, a 49% or greater loss in revenues to the industry will result. That is quite a haircut. For those lenders which are structured to depend on increased revenues just to survive, most will be forced to leave over time.

    While there is a silver lining for the MMI Fund and some borrowers, the same cannot be said for many lenders. The push we have recently seen toward the financial community to look at HECMs has all of the appearance of a desperate plea rather than a well organized and orchestrated effort to convince that community about the often overlooked values of a HECM as a first option in retirement planning. Like has been said so many times before, desperation is the mother of all innovation.

string(101) "https://reversemortgagedaily.com/2013/09/23/originators-get-ready-for-reverse-mortgage-changes-ahead/"

Share your opinion