Reverse Mortgage Funding Launches New HECM Choice Product

Reverse Mortgage Funding is rolling out a new Home Equity Conversion Mortgage product to offer the “best of both worlds” to borrowers.

The new product, coined the “HECM Choice,” is a HECM reverse mortgage that is insured by the Federal Housing Administration. Like all HECMs, it adheres to HUD rules and regulations, but it opens possibilities for borrowers by allowing them to take a fixed rate reverse mortgage while accessing some of the proceeds upfront, and some subsequently—an option not offered under the standard product.

“For the first time, we’re offering a fixed rate loan with the option for the borrower to take only a portion of the money available at closing and still have access to the remaining principal limit,” said Craig Corn, CEO of Reverse Mortgage Funding. “Until now, all fixed rate HECM offerings have required borrowers to take all of the money up front in the form of a lump sum. Anyone wishing to take a partial draw had to choose a loan with an adjustable rate, which is not as appealing to many homeowners. HECM Choice provides improved cash flow while also satisfying the preference for a fixed rate product.”

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The product launch is well timed, RMF says, given the recent product changes that went into effect in October. Those changes cut the amount accessible to borrowers and limited the amount a borrower can draw depending on his or her mandatory obligations.

“The industry has had time to digest the changes FHA implemented on September 30,” product manager Joe DeMarkey told RMD. “One of the biggest changes was the restriction on how much someone can borrow upfront or during the first 12 months. The HECM Choice offers the certainty of a fixed rate and access to the remaining principal limit without having to borrow it all upfront.”

RMF, which launched in August, is making the product available immediately to approved correspondents and will offer product training for brokers and principal agents December 19. The company plans to begin accepting HECM Choice loans for underwriting the in January, with a phased approach.

“We will be rolling out HECM Choice in phases,” said David Peskin, president of Reverse Mortgage Funding. “HECM Choice is immediately available for approved correspondent lenders, all of whom will receive training on HECM Choice over the next few weeks. Principal agents and brokers will have access to product training on December 19, and we expect to begin accepting loans for underwriting in January 2014. We believe this product will have a meaningful impact on the marketplace and feel a phased approach is best.”

RMF says HUD is aware of the HECM choice, and the company expects the product to appeal to an estimated 35% or more of the market currently.

“It’s consistent with what FHA implemented with utilization restrictions,” DeMarkey said. “We think HECM Choice fits perfectly in the marketplace given changes implemented.”

Written by Elizabeth Ecker

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    • Atare, The better question is, when did HUD decide to approve and allow individual entities to have their own proprietary reverse mortgage product? Try to imagine how strange the industry will get when every lender has their own unique Federally Insured HECM. Just unbelievable.

      • Mr. Mastromatto,

        As the expert in this thread, how are future draws impacted by the growth in the principal limit? Can the interest rate on future draws change in the five year period?

        What happens if the borrower pays down the balance due in the five year period? Does the draw go up at the end of the five year period to reflect the pay downs plus any related growth?

        Can the remaining available principal limit be fully drawn down in the second year following funding? What exactly are the draw rules? If the Mandatory Obligations are less than 50% of the initial principal limit, is the borrower required to take 60% of the initial principal limit at initial funding?

        It would be great if you could provide more information.

    • Atare,

      It is hard to tell from the scanty information in the article if the fixed rate HECM is open ended or an approved hybrid. It is hard to imagine that a fixed rate open ended HECM would have significant appeal in the HECM investor community.

      Let us know if you hear from Mr. DeMarkey, Mr. Corn, or Mr. Peskin.

    • hecmvet,

      How is this proprietary? If it is simply open ended, HUD has always allowed for an open ended fixed rate HECM. The problem is no HECM lender has ever wanted to offer a fixed rate HECM due to the risk of loss from interest rate arbitrage. It is hard to believe that the investor community would find this product attractive.

      If it is a HECM hybrid, then it sounds like FHA has approved that product. It would seem investors would not be repulsed by this product since the available proceeds would be offered at adjustable rates.

      It will be interesting to get a better reading on what the HECM Choice really is.

      • Mr. Veale, Who is going to be able to offer this product? With more and more of these cropping up it is going to really present some challenges to brokers and lenders.

      • hecmvet,

        In 2004, I remember Wells Fargo managers not knowing how to describe Cash Accounts when they first were first made available to them but by the end of the year they were originating them. The same was being said about Savers until the fixed rate Standard went away.

        If some lenders refuse to allow anyone but their retail units use their version of these products, how is that proprietary? Any other lender can add exactly the same product. There is no exclusivity to HECMs even if some of their terms are different.

        I have no concern about originators and brokers eventually adjusting, My concern is with the confusion many variations could produce in the secondary market.

      • Mr. Veale, rest assured I am not the least bit concerned if “originators or brokers” can comprehend the changes but I contend that the “exclusivity” that you talk about does in fact exist if it is a federally insured product that is only available for offering to the public if you are the issuer, direct lender or a correspondent lender for the direct lender.
        The “terms ARE different” and therefore they can be quite “exclusive”.
        Of course if every lender is willing to “broker” every competitor’s product then no exclusivity exists but I can’t imagine how this is going to play out when every issuer has one or two or three or more of these speciality products.
        As for the investors, they are closely consulted in the product development stage or it would not likely exist to begin with.
        Even more concerning will be how all of these new but widely scattered product offerings are going to affect the consumer?

      • hecmvet,

        I am replying to your post today which is awaiting RMD moderation. Disqus notified me of its contents.

        It is odd that you are concerned about how originators are comprehending the changes since until their recent extinction, Savers were the most misunderstood product by originators, our industry has ever seen despite the significant acceptance of Savers by the financial advising community.

        As to your statement about the secondary market, it assumes initial approval of a new product is all that is needed to ensure secondary market demand for the long-term. Yet do you remember what happened to the 1% margin ARM? Despite all of the flurry to adopt it by all lenders, it was not consumer demand that so quickly made that product unmarketable but rather changes in the secondary market. What is a great product today may not be so tomorrow; so please forgive my concern!!

        Since I cannot do justice to your concern about what you call “exclusivity”, the following is your statement on the subject: “…but I contend that the ‘exclusivity’ that you talk about does in fact exist if it is a federally insured product that is only available for offering to the public if you are the issuer, direct lender or a correspondent lender for the direct lender.” Most HECM lenders have had a practice of reserving some HECM products for their retail units only. Is that all you are so worried about? Competition normally forces such reserved products into the TPO pipeline. This is really nothing startling or deeply profound. As one of my deceased friends used to call such concern: “Old News.”

        Perhaps you believe that exclusivity should be challenged as restraint of free trade. To date I have never heard of such charges sticking to any HECM mortgagee or even forward lender as to your rather specious idea of exclusivity. Lenders are free as what products they do or do not offer to TPOs. TPOs do not like that but unless one can show it is a restraint of free trade, it seems TPOs are barking up a tree with no repercussions to lenders.

        Why would HECM lenders have to broker HECMs offered by other lenders when they can simply copy them? It seems you forget how quickly other lenders offered the same 1% margin HECM ARM as EverBank without brokering it through EverBank.

        It seems you are very leery of any new HECM products while I welcome them.

        (The opinions expressed in this reply are not necessarily those of RMS or its affiliates.)

      • Mr. Veale, you have misunderstood some of my comments and on others we simply disagree. Time will tell.
        One issue I feel compelled to respond to (take seriously) is the notion that a hmbs issuer, in this day and age would dream up a hecm product without consultation and agreement with the secondary market. That sounds more like the old ways of doing things.
        On to the next subject.

      • hecmvet,

        Like the Cheshire Cat of Alice in
        Wonderland fame, your last response brings a huge grin.

        (The views expressed in this reply are not necessarily those of RMS or its affiliates)

      • hecmvet,

        You call yourself a vet but write sophomorically the following: “One issue I feel compelled to respond to (take seriously) is the notion that a hmbs issuer, in this day and age would dream up a hecm product without consultation and agreement with the secondary market.” To which Mr. Veale wrote: “Like the Cheshire Cat of Alice in
        Wonderland fame, your last response brings a huge grin.”

        I am sure Mr. Veale has a wider smile today than he did when he wrote his well thought out comment.

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