A lot has changed in just a few short months in reverse mortgages, and some of that change has been expected.
Looking back to fall, when the Department of Housing and Urban Development implemented Home Equity Conversion Mortgage program changes, originators predicted that volume would fall based on a reduction in principal limit factors and a new restrictions placed on the upfront draw available through HECM loans
But less expected, a new line of products has emerged, still falling under the HECM guidelines. From the HECM Fourtune to the HECM Choice and others, lenders are offering new options to borrowers that allow them to choose their payment plans and rate options according to their preferences.
Here are the products in the order in which they were released publicly.
HECM Choice. Released December 2013 by Reverse Mortgage Funding (with all payment plans made available February 2014)—Like all HECMs, the HECM Choice adheres to HUD rules and regulations, but opens possibilities for borrowers by allowing them to take a fixed rate reverse mortgage while accessing some of the proceeds upfront, and the balance of the principal limit through any one of the allowable HECM payment plans—an option not offered under the standard product.
Fixed Advantage. Released December 2013 by Live Well Financial—Following the borrower’s upfront draw at loan closing, this fixed rate reverse mortgage allows the borrower to access the full balance of remaining loan proceeds on day 366 following the loan closing.
Fixed Fourtune. Released January 2014 by Live Well Financial—Like the Fixed Advantage, the Fixed Fourtune allows borrowers to access their remaining proceeds after a year post-closing, but instead of one payment on day 366, the borrower receives four payments—one in each year post-closing.
Fixed Freedom. Released February 2014 by Live Well Financial—The Fixed Freedom offers a fixed rate HECM with all payment options including an open-end line of credit that can be accessed and repaid by the borrower. Live Well’s fixed rate options are all structured as open-ended loans, meaning the borrower can draw down and re-borrow proceeds. Additionally, the traditional HECM credit line growth feature applies.
New fixed-rate reverse mortgages
Some in the industry have been quick to adjust to the new loan options. So far, lenders report originators have found success in offering the new products to borrowers and added flexibility to those borrowers.
“Our third party partners have embraced the HECM Choice,” says Joe DeMarkey, director of product development for Reverse Mortgage Funding. “They have quickly realized the improved value proposition to the borrower – specifically, the combination a fixed rate with the flexibility of any one of the allowable HECM payment plans.”
The open-end fixed rate loan offered by Live Well has been embraced by brokers in particular, in being able to pass along cost savings to the borrower because of how originators are compensated, says the company’s executive vice president, Bruce Barnes.
“What Live Well has created are open-end loans, which give brokers the ability to create flexibility with pricing to consumers,” Barnes says. “The broker community has responded very positively. We’ve also set some policies to ensure the proper conversations are being had with consumers and that the consumer is shown all of the product options.”
The industry adapts
Ultimately, vendors and third parties in the reverse mortgage process are also getting equipped for the new offerings, including the open-end fixed-rate line of credit. Reverse mortgage document preparation provider Bay Docs, for example, was equipped to handle the new loan types within just days of the new products rolling out, and is currently accommodating the open-end fixed rate HECM among all of the new loan options.
But early reports from counseling agencies indicate the word has traveled less quickly. Counselors are working to get up to speed on the changes, but new products in the marketplace are requiring some new education without many resources to provide it, counselors say.
“If a counselor wants information they need to go out and find it,” one counseling source told RMD. “In a lot of cases, it isn’t that easy to find.”
The changes ultimately will benefit the borrower and the industry, RMF’s DeMarkey says.
“It’s a new reverse mortgage industry,” he said in an email to RMD. “The changes that FHA implemented on September 30th are better for all of us—the homeowner, the industry, and HUD. We are developing new products that deliver the greatest benefits to the borrower. HECM Choice is one of those products.”
The flexibility to borrowers is the turning point for the new product landscape.
“When you look at the differences between fixed rate and adjustable rate loans, HECM Choice is the best of both worlds,” he says. “It provides a more flexible loan structure to meet each borrower’s individual needs combined with the cost certainty of a fixed rate that borrowers prefer.”
This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.
Written by Elizabeth Ecker