Nasdaq: New Reverse Mortgage Rules May Impact Appeal

Recent revisions to the home equity conversion mortgage (HECM) are putting borrowers’ finances under the microscope, making the financial tool less attractive to some consumers, says Nasdaq in a recent article

The new disclosure rule may also mean the neediest borrowers could be denied loans.

Nasdaq explains what the financial assessment entails, including that homeowners must verify their income and financial assets and go through an analysis of their expenses and cash flow. 

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“What if an applicant has missed payments of property tax or insurance or does not have enough net income?” Nasdaq says. “Such perceived-to-be risky applicants may still get a loan if a portion of it is put into a set-aside account for payment of future property taxes and insurance. But critics say that if this set-aside is too large, it may cut the appeal of reverse mortgages.”

In addition, the article notes the HECM change that took place in late 2013 that caps the amount that borrowers can access of their loan in the first year. 

In the short-term, these key changes could trim demand for HECM loans, Prof. Stephanie Moulton, a reverse mortgage expert at Ohio State University, tells Nasdaq, adding that over time the changes may “lift demand” among a segment of seniors who see reverse mortgages as part of a longer-term financial strategy. 

Read the article here.

Written by Cassandra Dowell

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  • Dr. Moulton is no doubt correct. However, will the lift in demand in the segment who see the HECM as part of their retirement strategy be sufficient to offset the loss in our traditional needs based market through 1) lower principal factors, 2) a cap on first year disbursements, 3) financial assessment and 4) LESAs? Of course as seen in my question, I am not confident in any significant growth on an annual fiscal basis for at least two years, if not longer.

    Some lenders try to defuse the last two problems [items 3) and 4) above] by estimating lost business at only 3% – 5% but even that is a rather discouraging level when we are fighting to just get back to 50% of the amount of endorsements we had in fiscal 2009. Stating that the industry will endorse 300,000 HECMs in a single fiscal year a few years before the end of this decade hardly seems the stuff of a well disciplined, circumspect, and fiduciary conscious industry. We need to be careful how we present ourselves. We do not want to appear as if we do not understand our industry or its trends the way those types of predictions make us look especially when at the time that prediction was raised we all knew financial assessment was not in the too distant future.

    At times you wonder just who it is that is leading the troops. I am sure they are well meaning and knowledgeable….

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