HUD: Time to Wait and See Effects of Reverse Mortgage Policy Changes

The Department of Housing and Urban Development has made a host of changes to its reverse mortgage program in the last 18 months, and now will focus on evaluating the effects of those changes.

Following implementation of the long-awaited financial assessment that applies to all borrowers as well as changes to principal limit factors and non borrowing spouse adjustments, HUD representatives said during the National Reverse Mortgage Lenders Association western regional meeting that the priority now is to see whether those changes are working.

“We feel we have completed implementation of many major policy items,” said Karin Hill, director of Single Family Program Development at HUD. “The focus now will be on executing and being able to monitor and evaluate those policy changes. It seems to be going smoothly.”


Hill and staff pointed to several recent improvements in the Federal Housing Administration’s home equity conversion mortgage portfolio, including an intended shift away from fixed rate loans toward a majority of adjustable rate reverse mortgages.

From a loan composition of 31% adjustable rate reverse mortgages and 69% fixed rate in fiscal year 2012 to an 82% adjustable rate majority in 2015, to date, the department has accomplished one of its major goals.

“We feel this is good news,” Hill said. “Mission accomplished. This was the outcome we had hoped to see and we’ve been successful in doing that.”

New loans are also shifting away from large upfront draws, Hill said, citing a figure of 66% of loans that are drawing less than 60% of the proceeds upfront. However, she noted, fixed rate loans are still seeing high draws, mostly being used to pay off larger mortgages.

There are still concerns that exist, such as that around lenders influencing borrowers on payment plan options through mechanisms such as waiving origination fees for certain draw types.

“They could be isolated cases, but we have to emphasize how important it is to support FHA’s requirements that borrowers have the full ability to select payment plans so that we can continue to see improved draw patterns,” Hill said.

While HUD may be now watching to see the effects of recent policy implementation, many of the changes that have been made have yet to go through the formal rule making process. HUD will be codifying those changes, with hopes to publish rules by year end, at which point lenders and the public will have an opportunity to provide additional feedback and comments.

Written by Elizabeth Ecker

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  • It is good to see HUD moving to change the program back to its original intention — providing a means for seniors to manage cash flow throughout retirement. This is far more meaningful than aging in place or stopping seniors from running out of money.

    The problem is many people do well in retirement but still do not know how to manage their cash flow so as to maximize it. Knowing when to convert portfolio assets into cash, when to pull out larger or lesser funds from defined contribution retirement plans, income tax planning in regard to when to pay deductible expenses, and when to acquire riskier but higher earning assets are just some of the techniques needed to maximize retirement cash flow. Most seniors overlook basic cash flow management techniques and their cash flow shows it. The HECM was designed to help seniors maximize cash flow despite lower income in retirement and greater medical and personal care costs in retirement.

    What most financial advisors lack training in is how to use debt to take advantage of situations requiring cash when cash is scarce and then paying the debt back as the situation turns around. The HECM line of credit is unique in its flexibility and growth in the available proceeds.

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