Will New Rules Revive Reverse Mortgages?

New rules could revive reverse mortgages, writes reverse mortgage advocate Alicia Munnell in the headline of a MarketWatch column this week. Noting she is a “fan” of reverse mortgages, Munnell, who directs the Boston College Center for Retirement Research, says she is in favor of the recent reverse mortgage program changes as a necessary measure to protect and bring back the Home Equity Conversion Mortgage program. 

Detailing the new changes, Munnell says the measures were designed to fix past program problems, including pressure on the Federal Housing Administration’s insurance fund for HECM loans. But in addition to alleviating some of the past pressures, the loan also offers less equity available to be borrowed by new applicants. 

Munnell gives an example in her column: 

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“The new regulations also reduce the maximum amount of home equity that borrowers can access. It will still depend largely on the age of the borrower, the value of the home, and the interest rate. But under the new regulations, assuming an interest rate of 5%, a 72-year-old will be able to withdraw up to 57.5%, minus fees. This compares to 67.7% of the home’s value using the [former] standard and 55.4% using the [former] saver.”

Forthcoming changes including a financial assessment of borrowers will present an additional overlay, Munnell writes, stressing that the changes are taking the program in the right direction. 

“All these changes should be viewed as positive,” she writes. “The limit on first-year withdrawals will reduce the likelihood that borrowers will spend their money and be left without a buffer to allow for future needs. The financial assessment will ensure that the people taking out a reverse mortgage will not be forced into bankruptcy by failing to pay taxes and insurance. Consolidating the standard and the saver will make the program easier to understand. A better customer experience combined with slightly higher fees and slightly lower loan amounts will also take pressure off the insurance fund.

We need this program to work well, because people are going to need the money.”

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Written by Elizabeth Ecker

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  • Yes, the program is stronger, but if no one qualifies or wants to be restricted under the new program what good is it.

    I had someone looking at the fixed rate. They had no interest in an adjustable. When they realized there would be about $40k they would not be allowed to take, but are still responsible for a 2.5% MIP, orig fee, and state closing costs they had no interest. The upfront costs were about 10% of the money they could actually borrow with the 10% limit of the principal limit beyond the mandatory obligations. Then add on a 6% compounding interest rate with the 1.25% annual mip? They thought they were giving their house away for 40 cents on the dollar. Tough to argue. I see why HUD likes this.

    • Is volume the issue or is it revenues? If your focus is solely on volume, then you are fixated on the wrong issue.

      John Lunde has predicated that if all things were equal to last fiscal year except HECM products, total HECM UPBs at funding would be 51% of what it actually was last fiscal year. Add in lower investor premiums, and where are revenues? Even if volume is double that of last year, where are revenues?

      But does any experienced HECM originator really expect volume to be up this fiscal year? What you are reading is exactly what my problem is with the BC center for retirement research. They have a constant habit of releasing conclusions on issues with no credible research backing it.

  • Here is how in part is how Ms. Munnell explains the product: “Under this program, the government designs the product and provides insurance (for a fee) for the borrower….”

    It is interesting the author calls this insurance for the borrower. How is it insurance for the borrower? There is no contract the borrower signs and the mortgage must be nonrecourse BEFORE HUD can even insure it. HUD insures the mortgage and the direct contract is between the mortgagee and HUD. Only the mortgagee makes any claim if there is a loss.

    Then the author wants us to believe that the changes will revive the HECM program but in whose eyes? Borrowers? Lenders? HUD? Investors? Seniors? The public generally? Congress? The Press? Or some combination of those eight?

    Ms. Munnell goes on to say: “The financial assessment will ensure that the people taking out a reverse mortgage will not be forced into bankruptcy by failing to pay taxes and insurance.” Does Ms. Munnell know the difference between bankruptcy and foreclosure? Her article does not show it. The purpose of financial assessment is NOT to keep borrowers from being forced into bankruptcy but rather foreclosure.

    Does anyone really believe that “consolidating the standard and the saver will make the program easier to understand” especially with new upfront MIP and first year disbursement rules? What does mean when says: “… provide reverse mortgages in a socially responsible fashion?” The author never says what she means.

    All in all we read another article by a BCCRR official representative which shows the author is acquainted with HECMs but is hardly competently conversant on them.

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