Reverse mortgage changes are having a positive impact on the Home Equity Conversion Mortgage program, as intended by the Department of Housing and Urban development, agency officials said this week.
The changes most recently include the implementation of a financial assessment for all borrowers, which took effect in April 2015, as well as non-borrowing spouse protections that also took effect over the course of the last year.
“We are very pleased,” said Karin Hill, senior policy advisor for HUD’s Office of Single Family Housing. “[The program] has stayed very stable and the changes resulted in the outcome we had hoped for.”
Specifically, HUD has noted several changes for the better among the composition of current borrowers. The shift comes along with an overall decline in reverse mortgage volume directly following the Financial Assessment rollout, although monthly volume is along the pace of its previous-year totals, Hill noted.
In 2015 and 2016, there was a significant change in draw patterns at closing among reverse mortgage borrowers that HUD calls “very positive.” According to the department’s data, 63% of borrowers draw 60% or less of their proceeds at closing.
There has also been a marked shift away from fixed rate reverse mortgages; a trend which began prior to the financial assessment rollout, but has settled at 89% adjustable rate loans as a proportion of overall loan production.
“This has had a very positive impact on the risk profile [of the program],” Hill said.
HUD is currently working on a new HECM rule that will include many of the program changes that have taken place of late; a rule that is expected to be proposed in the coming weeks and will seek comments from the public. Within those changes, lenders can expect to see some clarifications of Financial Assessment details as well as a subsequent publication of the new HECM handbook, HUD’s officials said.
Among several concerns expressed by the Department are the proportion of HECM-to-HECM refinance transactions being closed currently, borrowers who are making large repayments shortly after closing, as well as possible steering issues relating to reverse mortgage counseling.
“Out in the field, we have to monitor how people are selling the program,” Hill said. “Some things may not seem to be risk issues, but they are in fact risks.”
Overall, however, HUD praised the program changes, noting the positive impact they have had to the Federal Housing Administration’s Mutual Mortgage Insurance Fund.
“We aren’t at the end of the road yet, but we are very dedicated to this program,” Hill said.
Written by Elizabeth Ecker