HUD Teases Upcoming Plans for Reverse Mortgage Program

Officials with the Department of Housing and Urban Development (HUD) this week shared several updates concerning ongoing initiatives related to the Home Equity Conversion Mortgage program.

Speaking during the National Reverse Mortgage Lenders Association’s eastern regional conference in New York City, key HUD staff discussed the agency’s most recent series of HECM program changes, the impact of the new rules on the industry, and what’s in store for the HECM world in the coming months.

“Now that the majority of the policy related to stabilizing the HECM program have been completed, we are focused on evaluating the impact of those changes,” said Karin Hill, senior policy advisor with HUD’s Office of Single Family Housing.


HUD is also focused on identifying areas that may require updates in HECM policy, Hill added, as well as codifying, via a proposed rule, the entire HECM regulatory section of the Code of Federal Regulations.

“We’re getting down to some of those operational levels that we think will also support the functioning to make the HECM program better,” Hill said.

HECM program metrics for Fiscal Year 2016 illustrated some of the impacts from recent rule changes over the years, such as the Financial Assessment and upfront draw limitations.

For FY 2016, through February 29, 2016, adjustable rate HECMs reached 89% of total endorsements year-to-date, reflecting the impact of policy changes related to the termination of the fixed-rate standard, full-draw HECM. This high share of adjustable-rate HECMs brings the industry back to a similar status in 2010, when there was about the same level of ARM loans in the market, prior to reducing the fixed-rate product, Hill noted.

There was also a significant shift in 2015 in the choice of ARM plans, from monthly adjustable-rate products to annual ARM HECMs, with annual arms increasing from 2.4% in 2014 to over 60% in 2016. Meanwhile, Hill noted fixed-rate loan production continued to decline in 2016.

In April 2015, with Financial Assessment looming at the end of the month, HECM endorsement volume was significantly higher February through April than what it was prior to that, due to the influx of borrowers rushing to obtain HECM case numbers before April 27.

HECM endorsement volume then dropped off considerably in the months following, however, looking at FY 2016 data, Hill noted that volume, with the exception of January, was consistent with the last few months of 2015. Despite the short-term dip in volume, HUD remains optimistic that the current environment for the HECM program will contribute to the reverse mortgage industry’s long-term growth.

“We certainly look forward to the HECM program continuing to settle down,” Hill said. “Based on the perception of the program and the marketing in the industry, we feel that will increase our volume going forward.”

As HUD continues to examine the HECM program, as well as develop operational system enhancements internally, the agency is currently working on publishing a HECM-specific section of the Single Family Handbook, the latest 4000.1 version of which, became effective September 2015.

“Staff at FHA have been working on a HECM section that will be included in 4000.1,” said Erica Jessup, HECM program specialist at HUD, during Tuesday’s conference.

The new handbook will cover origination through endorsement of HECM policy, and will update the current HECM handbook 4235.1., which was first issued in 1994. Not only will the new handbook replace version 4235.1, but it will also incorporate guidelines found in HUD’s Financial Assessment Property Charge Guide, as well as Mortgagee Letters that are still active, Jessup said.

There are also plans to include a section on reverse mortgage servicing at a later date. As HUD crafts the new guide book and prepared it for publication, Jessup said the agency will “put it on the drafting table,” providing an opportunity for the reverse mortgage industry to view its contents and provide feedback to FHA.

As of right now, HUD does not have a timeframe for when the handbook will arrive.

“We are working and we’re hoping to get that done this fiscal year so the industry can have the opportunity to make comments on it,” Jessup said.

Looking ahead, in terms of future rule-makings for the HECM program, HUD has been active in recent months, releasing a stream of updates regarding non-borrowing spouse provisions and loss mitigation options for reverse mortgage servicers.

Aside from the initiatives laid forth during Tuesday’s industry event, it is likely that substantial program updates will be more sporadic than in recent history.

“While we certainly won’t quit publishing Mortgagee Letters, we feel that hopefully they won’t be coming so quickly one after another,” Hill said.

Written by Jason Oliva

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  • I don’t think there will be much of a change in perception to this program. It will be very surprising to me if this program ever surpasses the 1-2% penetration any time soon. I think that is just the % of folks who will use this program. You can market it any way you want, but when you sit down and look at costs, margins, MIP, and the compounding interest you are paying on the borrowed money folks will see it for what it is. The only good change I have seen is the favorable annual adjustable. Now if only the margins and annual MIP would come down. Or hope rates never go up. Maybe I’m wrong, but I’ve been originating these loans since 2002 and it is how I see the current situation.

    • Mr. Dean,

      One of the key reasons the industry has pushed into the financial advising world is for the very purpose you describe.

      It has generally been hoped that this group of advisers would see the inherent value of the HECM product when it comes to the more financially independent senior. Here it was hoped that if the value proposition could be properly promoted, then these advisers could help carry our water by confirming the HECM value proposition not just with their clients but with the senior population generally over time. To a limited degree we are seeing that occur.

      Notice I ignore Realtors and builders. These are not the financial influence leaders that financial advisers are. Their time of influence with the few seniors they see is erratic and short. They facilitate a single transaction that will not normally be expected to reoccur for several decades. Their need for speedy and sure closures sometimes puts them at odds with even mentioning to their customer a product with which they have little experience, a HECM.

      With low volume, there is a need for higher revenue for mortgagees, originators, and TPOs; thus higher margins with resulting higher premiums.

      As to ongoing MIP annual rate, do not be confused, the HECM portion of the MMI Fund has only seen negative results from HECM operations beginning on 10/1/2008. While the ending balance of HECM portion of the MMI Fund was $6.778 billion at 9/30/2015, of that total $1.686 billion comes from a single transfer from the US Treasury and $5.776 billion comes from net transfers out of forward mortgage programs in the MMI Fund. That means that of the $6.778 billion, $7.462 billion was transferred from sources not related to the HECM program, all in an effort to window dress the cumulative HECM operating loss of $684 million.

      Organizations wanting lower MIP for their FHA forward programs are beginning to ask why it seems that their MIP has gone to support reverse mortgages. We will see how much pressure these organizations are able to raise in this regard.

      So for the foreseeable future, currently higher margins and an ongoing MIP annual rate of 1.25% will be facts of HECM originating life. Finally I agree with you about annual adjusting HECMs of today. Right now I expect slow growth in endorsements over the next few years with little hope of even 100,000 endorsements in a single fiscal year until after 2020.

      • I guess I look at it differently. The program is worse for ‘borrowers’ today than in the past. If a financial planner did not like the program in the past why would they like it now with higher rates, higher MIP, and significantly less money available? The program isn’t better for the borrorwer, it’s better for the gov’t and banks. It is also a much bigger hassle to get the loan today.

        Back in the mid 2000’s financial planners were a big push , but never caught on then. I always looked at my book of business and where business came from and very few came from advisors. I looked at the time spent to sit with financial advisors in hopes to get 1 referral a year. Not an efficient way to build a consistent book of business, but it was always pushed as the next wave. Maybe it will be here eventually, but most folks need business today.

        There will be a few advisors who see the value, but how many of them actually have clients who need a reverse mortgage. Financial Planners are in business to manage money. I have many friends in the industry. I have not received 1 referral from them and they probably know more about reverse mortgages and their use than your average financial advisor. But they are in business to attract clients who don’t need a reverse mortgage and have plenty of assets. The advisors see it as a last resort if needed. Maybe this will change, but it will be awhile.

        Curious James, are you out on the street sitting with folks daily or are you in a management position? No disrespect, but I find this usually dictates how one responds to certain responses.

        Take care.

      • Mr. Dean,

        I did not arrive in the industry as an originator until very early 2005. I was asked to look into them for the widow of a deceased close friend about a year earlier. I had a thimble full of knowledge about HECMs or reverse mortgages generally before 2004.

        You are right to some degree; my experience is on several sides including originator, branch manager, and Senior VP. For the last 16 months, I have been taking care of health matters.

        I was in SF in late 2006 trying to join the NRMLA group reaching out to financial advisors. As I attempted to join, I was informed that committee reorganization had ended that committee. Lenders felt to emphasize other marketing targets.

        For our former traditional market segment, you are right, the “New” HECM is much less useful. Fewer can qualify and those with huge existing mortgage balances just cannot qualify as in the past. If you are looking for immediate return for your time invested, you are also right, financial planners are rarely that source.

        Yet here is where we part ways. Is there any question that there is far more substantial research findings supporting the view that seniors who are more affluent than “house rich and cash poor” can indeed benefit from a HECM? I strongly believe we are seeing a surge of support for that position from what financial professors are writing about HECMs and about how HECMs improve the retirement plans of the mass affluent. It is a start and a good start.

        I realize your personal experience says that we are not where we need to be with this referral source to financially support the average full-time HECM originator through this avenue alone. Again we agree. But change takes time and we are just at the start of this change. The knowledge needed to support financial advisors is lacking on our side and the bias against HECMs is still high among the average financial advisor.

        The industry is seeing progress in endorsement from this source but not fast enough to make up for the impact of financial assessment with its LESAs.

    • Jim-
      It sounds like you may be too focused on “cost” at the exclusion of “benefits”, or perhaps you are just reflecting back in your comment the preoccupation with “cost” on the part of consumers.

      If the former, please try to re-focus; if the latter, the unique benefits of the HECM program will eventually prevail!

      • Just my opinion from experience. Cannot count how many financial
        advisors I have sat with and the program is less favorable to borrowers
        now than it was 5-10 years ago. It’s even a harder ‘sell’ today. Obviously the prior programs weren’t favorable to FHA/HUD, but just because the program is better
        for the government and banks now, doesn’t mean the program is ‘better’.
        No offense to the ones arguing the above but it sounds like a sales
        manager trying to keep folks positive. Believe me, I do not need to be sold on the ‘benefits’ of this
        program. I have written 700+ reverse mortgages over the years. I am
        just generating an opinion based upon experience of sitting down with
        over 1,000 borrowers, financial planners, and whomever else you sit with
        face to face to discuss this program. Maybe it will change, but it will
        not be in the foreseeable future. Again, my opinion. Maybe 5+ years
        down the road when more retirees are in trouble than they are today things will be better. That is a long time to wait to ‘see if this industry improves’.

      • Mr. Dean,

        Again your views on many of these topics are the same as mine. We may stress them differently.

        I do not see the program today any better for banks because most large banks left the industry about five years ago. As to lenders, when endorsements are shrinking overall, how are lenders doing better than last year or in 2013? It seems on this issue, we once again part ways. Most lenders were doing much better when there were fixed rate Standards but they are seeking ways to improve the net profit per origination to help make up for the loss in revenues due to reduced endorsement volume and lower average UPB per endorsement.

  • Interesting what teases, as Jason calls it, were released by HUD at the NRMLA conference.

    As far as the up coming new Handbook, this is long overdue, a lot has happened since 1994.

    I always get concerned when ever I hear about HUD coming out with changes or as they are saying,evaluating the impact of all the changes that have occurred.

    I am sure we would all like to think that HUD means they will be improving on those deficiencies that have come to fruition since the FA ruling came into effect back in April of 2015. Time will only tell!

    I agree with the statements made by HUD, as far as remaining optimistic about the future of the HECM program. I also agree that the changes, such as the FA ruling and the non-borrowing spouse changes will contribute to the reverse mortgage industry’s long-term growth.

    However, at the same time, I feel that certain parts of FA needs to be changed as well as clarified. Everyone has run into problems on one thing or another, especially on the underwriting side. In many cases, FHA has not even been able to answer certain questions. In short, many delays in getting loans to closing have been because of these deficiencies within the FA ruling

    Let us all hope many of these road blocks and hurdles can be overcome. This in itself will help stabilize the HECM program for present day and the future!

    John A. Smaldone

    • John,

      For seven years, HUD has not budged on various positions on H4P even though they recognize that their positions result in enormous unnecessary difficulties in the H4P process. Do we really believe that we will find better cooperation on either September 30, 2013 or financial assessment changes? I am less confident than the tone of your comment.

      • Jim,

        I understand your point on the subject, I would like to stay optimistic but you are being realistic my friend!


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