FHA Reverse Mortgage Changes Force Lenders to Adapt Strategy

Changes made to the Federal Housing Administration’s reverse mortgage program have hit lenders hard, but some are starting to see volume rebound.

The Department of Housing and Urban Development (HUD) made changes on September 30, 2013 that reduced principal limits and placed restrictions on when borrowers can receive loan proceeds.

The changes are meant to ensure borrowers have access to their equity over the lifetime of the loan rather than taking draws that aren’t needed, said Karen Hill, director, Single Family Program Development at HUD during the National Reverse Mortgage Lenders Association conference in New York City on Tuesday.

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“There is obviously an economic impact to players in the space [as a result of the changes],” said Reza Jahangiri, chief executive officer of American Advisors Group. “The dynamic has changed and there has been a paradigm shift on how you approach the borrower.”

Rather than help borrowers get a lump sum of cash from their reverse mortgage, Jahangiri says AAG has trained its staff to dig into the needs of borrowers in order to figure out how to make the proceeds last a long time and become a retirement planning tool for years to come.

AAG saw retail volume drop 18% during the last two quarters of 2013, but is now seeing volume rebound during the first quarter of 2014. The rebound has been fueled by additional advertising that has increased the number of leads the company is delivering to offset the number of people who are no longer qualifying.

“Over the last four to six months we have seen a reduction in cost per lead, which is a nice trend going in our favor,” said Jahangiri. “Not [exactly] sure why, but it has helped us under these changes.”

Counseling agencies are also starting to see volume tick up after a dismal couple of months according to Tony Lopes, housing director at Cambridge Credit Counseling Corp. However, the agency is seeing more seniors coming to counseling less prepared than before, which leads to longer sessions and borrowers being confused about the product.

“We have seen an increase in cancellations, which correlates to the lack of education [being done] prior to sessions,” he said.

While most lenders during the conference expressed some concern about upcoming financial assessment changes, HUD stressed it’s important for the long term future of the industry.

“We are trying to balance how we sustain the program,” said Hill. “It’s a very important program that we totally support and have to ensure it’s sustainable for HUD and borrowers.”

Written by John Yedinak

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