With the most critical Home Equity Conversion Mortgage (HECM) policy changes already implemented, reverse mortgage industry leaders are bullish for the tailwinds laying ahead now that the HECM program has finally found “solid” ground.
In 2012, the Consumer Financial Protection Bureau (CFPB) released a report to Congress that focused on several product-related features of the HECM program, scrutinizing several consumer protection concerns, particularly spotlighting issues related to non-borrowing reverse mortgage spouses, tax and insurance defaults, among other “emerging concerns.”
In the past year, however, many of these concerns have been addressed through a series of rule changes and tweaks to the HECM program, all of which were devised to increase borrower (and non-borrower) protections and ultimately, minimize risk to the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund.
The news earlier this week revealing the $7.9 billion improvement in the HECM program’s financial standing gave the reverse mortgage industry a confidence boost that the changes haven’t been all for naught.
“We have tailwinds from a regulatory environment perspective,” said Joe Demarkey, principal at Reverse Mortgage Funding, LLC, who also serves as co-chairman of NRMLA’s Board of Directors. “All of the critical program-saving changes FHA has made over the past few years are now behind us—the Financial Assessment being the last of those.”
This year, the HECM program saw a series of rulemakings from the Department of Housing and Urban Development (HUD), including the Financial Assessment, updates to the non-borrowing spouse policy, along with tweaked servicing and loss mitigation policies. And while these rule changes stirred uncertainties for many reverse mortgage lenders, wondering just how these updates will truly impact their businesses, now that they have already been put into practice, the market may finally be entering a stable environment that facilitates growth.
“We have a period of stability on a go-forward basis for the foreseeable future without having to make changes to the underlying structure of this [HECM] program,” Demarkey said. “It’s been hard to grow the marketplace as we’ve gone through all of those changes, but it’s time to look forward to being proactive in terms of what we do, and how we do it.”
Even for smaller lenders, for which the Financial Assessment has arguably had a more adverse impact on volume compared to larger shop players, the aftermath of the rule change looks promising.
“This is the brightest outlook for small companies that it has been in years because of this stability,” said Mark Browning, founder and president of HomeChex, which primarily serves borrowers in the New York area.
But while the outlook may seem bright, the Financial Assessment was not without its challenges for all industry members.
“We’re all resilient. We’re all capable. We came out of the previous policy changes and we’re better for it,” said Reza Jahangiri, CEO of American Advisors Group. “This one is taking longer—it’s a substantive, complicated layered add-on to our product, but it was necessary and it will only give us the potential upside in bringing new players and not having the big banks leave our space, and making the HECM a better product in terms of investor interest, too.”
“In general, the Financial Assessment has added a level of credibility to our product,” said Sherry Apanay, chief sales officer at Urban Financial of America. “The HECM is now seen as a much safer product. Hopefully, as we go forward there will be some improvements we can make, but it [Financial Assessment] is a good first step.”
Written by Jason Oliva