Reverse Mortgage Industry Enters New Era of Stability

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.

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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

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  • It is good to hear Joe encouraging a proactive outlook and stance. While we now have product stability, the problem is sales. As reported by HUD, the HECM case numbers assigned in September 2015 is the worst such total for a September in a decade.

    It seems when we speak about perception of the HECM as a better product the proof is somehow missing. Does that perception extend much beyond some of the press, some respected financial leaders, and our industry? It is certainly hard to find it among Realtors or for that matter CFPs, CPAs, attorneys, or other financial advisors. Most importantly, as of yet, that perception is not reflected in sales.

    Here is where the cry of education will be heard but that contradicts the whole idea that the perception is all that extensive or all that deep.

    If the HECM program is doing all that well from a monetary point of view in the MMI Fund, then why not continue the financial assessment but for now loosen its more draconian aspects and lower LESAs by reducing the number of years that they must be vested? Even HUD and its actuaries have noted in their respective reports for fiscal year 2015 that house price appreciation is reasonably strong. Thus not only is the economy doing OK but home price appreciation should mean a better MMI Fund valuation for several years.

    I am not suggesting that financial assessment should be terminated (as I do with FIT until it can be reflective of financial realities) but rather in this period of time, its more difficult aspects could be relaxed without substantially impacting the number of tax and insurance payment defaults. While downturns are sure to come to home prices, in the near term few expect that the potential downturns will be as long or as steep as those we experienced in the last half of the last decade.

  • With HUD freely discussing the problems of volatility of the balance in the HECM part of the MMI Fund, one wonders about the title of this article. However, if HUD is serious about not making significant changes to the HECM program for a few years, then for many of us that would be stability.

    Due to most active fixed rate HECMs with case numbers assigned before 10/4/2010 and the fixed rate Standards thereafter accounted for within the MMI Fund, volatility will be the order of the day for the HECM part of the MMI Fund that is at least until this cohort of fixed rate HECMs are substantially terminated. Many of these particular HECMs are entering into the assignment stage of the HECM life cycle. In fact the assignment pool of HECMs should grow dramatically in the next few years due to these closed end mortgages. The assignment pool of HECMs should return to its proportionally normal size once the vast majority of this cohort of HECMs terminates which should be sometime before the end of the next decade.

    However, from a historical perspective we now have a series of years where the problem of volatility is quite evident going both up and down. Let us hope that the picture is plain enough so that fears of losing the program over it can be mitigated if not reasonably eliminated.

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