Reverse Mortgage Industry Digests FHA’s Latest HECM Changes

The Federal Housing Administration this week proposed a number of substantial changes to the Home Equity Conversion Mortgage program. As the industry digests this latest series of rule updates, popular belief suggests the new proposals will affect virtually every aspect of doing business in the reverse mortgage sector.

A little more than 24 hours ago as of this writing, FHA published a notice in the Federal Register detailing a set of new rules aimed at the agency’s efforts to further strengthen the HECM program and reduce risk to the Mutual Mortgage Insurance Fund.

“HUD’s leadership has continually voiced its support for the HECM program throughout the Obama administration as the Department has sought to put it on a sounder financial footing,” said National Reverse Mortgage Lenders Association President and CEO Peter Bell in a written statement sent to RMD. “These proposed regulations are another step in this process of strengthening the program, an effort that has been underway for a few years now.”

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Suffice to say, the more than 200-page proposed rule will make for a busy reading weekend for industry professionals as they sift through the document and formulate, once again, strategies for how they will adapt to this most recent round of HECM program changes.

RMD’s requests for comments to various industry stakeholders, including both national and regional lenders, servicers and loan originators have mostly been met with hesitation. But as many are still poring over the documentation, the consensus seems to be that these changes will have a profound impact on various industry processes, including origination, servicing and even within the secondary market.

“In developing the regulations, HUD has to consider the perspectives of many stakeholders—homeowners, housing counselors, lenders, consumer advocates and Ginnie Mae investors, to name a few,” Bell stated. “It is not an easy task to balance the needs and concerns of all. Now we must all digest what has been proposed, project the potential impact and provide thoughtful comments back to HUD for its further consideration. We welcome this opportunity.”

FHA’s proposed rules will reinforce and codify recent HECM reforms that the agency has implemented in the past several years, and will also add new consumer protections, including making certain that HECM counseling occur before a mortgage contract is signed and requiring lenders to fully disclose all HECM loan features.

The proposal also aims to cap lifetime interest rate increases on all adjustable rate HECM loans to 5%, and reduce the cap on annual interest rate increases on adjustable rate HECMs from 2% to 1%.

Additional proposals include requiring lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a Deed-in-Lieu (DIL) is executed, rather than until when the mortgage contract is terminated; as well as create a “cash for keys” program to encourage borrowers to complete a DIL and “gracefully” exit the property versus enduring a lengthy foreclosure process.

“As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure and sustainable financial option for future generations of senior homeowners,” said Ed Golding, principal deputy assistant secretary for housing at HUD, in a written statement issued this week.

Written by Jason Oliva

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  • Wondering as HUD continually makes this program Safe, Secure, and Sustainable what will happen: 1) no one will qualify 2) no one will want it 3) Will become too burdensome for lenders to offer 4) All of the above.

    • Yes – while the objectives are commendable, the results may parallel the LTCi industry: a product many should have but too complex, too expensive and too difficult to qualify…so the consumer takes a pass.

    • Jim,

      About a decade ago, many in the industry were so over the top about the growing proprietary market that some recognized leaders were saying that HECMs would only be about 25% of all reverse mortgage originations by 2010.

      Maybe HUD heard those fanatics and is simply having a delayed response? As implemented by HUD, the changes in recent years have left a product that has the highest appeal to the research needed for personal financial academicians, not necessarily for recommendation by rank and file practitioners, just yet.

      Again could HUD be hoping to redesign HECMs so they are less appealing to the mass affluent? Quite frankly it seems more likely that the Secretary is trying to put his mark on the HECM product before he is required to change jobs after the inauguration of the competing Democratic front runners or is dismissed from Cabinet service by President Trump.

    • wealthone,

      At what cost? Lenders will want more guaranteed compensation over the life of the loan. The natural place to get it is from higher margins on monthly adjustable rate HECMs.

  • Here are the results are the end results of this new round of changes.

    1. The program just got considerably more expensive for the consumer in the form of higher margins. Caps on annual and total interest rate increases benefit the borrower but at the expense of higher interest rates.

    2. Loan volume will suffer due to higher costs which reduce available loan proceeds to the consumer and heighten consumer resistance. Loan volume will suffer due to the new “Super Lien” rules for condominiums. As volume declines, cost per loan increases which is inevitably passed on to the consumer.

    3. “Cash for Keys” is a laughable choice of words but anything that simplifies the Deed in Lieu of Foreclosure process will be a welcome step. Too bad they can’t seem to make it easier for new buyers to acquire the hecm property between the time of default and final foreclosure.
    4. There will be yet another concerted effort to stampede the consumer into a hasty decision in order to beat the clock of the new deadlines. This is actually the worst consequence in my opinion.

    What did I miss? “Safer” really?

  • I have started reading the 220 page proposed rule, I will be doing as Jason had mentioned, doing a lot of reading this weekend!

    I am seeing some very positive changes thus far but I am also running into some ambiguities and concerns as well. I am writing down my questions and will wait until I have finished reading those 220 pages. Once completed, I will seek out the answers to my questions from many of you out their and from the Horses Mouth!

    Good comments on todays article by the likes of The_Cynic, REVGUYJIM, Hecmvet, wealthone and Jim Dean!

    I like and have to somewhat agree with what Jim Dean said in his comment!

    Will very few down the road be unable to qualify? Will many still want the HECM? Last but not least as Jim puts it, Will a HECM become too burdensome for lenders to handle??

    I say, safe is one thing, over regulation is completely another subject of its own!!! Time will only tell and some point in time the changes and the over regulating has to stop. If it does not, what Jim Dean has stated could very well come to fruition!

    Good comment Jim! I am anxious to see more comments and what more we find out in the coming couple of weeks, Jason, get your Pen out!!

    John A. Smaldone
    http://www.hanover-financial.com

  • It is Monday morning, I have gotten through 146 pages of the proposed changes and ruling. As like any ruling from HUD or the Federal Government, reading between the lines does take time and brings up many questions. I am finding the way things are worded in many cases, one could interpret some of the proposals in various ways?

    The subject on condominiums as an example. One section on page 8 referes to Super Liens! This rule proposes to require, as a condition for a HECM to be eligible for loan assignment, that the HECM mortgage be in lien status prior to homeowners association and condo association liens. In some states, HOA’s must be paid off first, just like a Federal Tax lien. What happens in this case, does it mean no condo’s would be exempt and not able to be originated in those states?

    That is just one example, I am sure all who are reading the 220 pages have many questions.

    However, there are many great proposed changes as well. I am just questioning areas that are not clear and can cause confusion!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      It seems you believe that lenders will overlook this new risk. Since this is a qualification for assignment, these amounts will have to be paid off just before assignment. If the line of credit is sufficient to pay them, no problem but if the line of credit is insufficient to pay the costs or reimburse the lender/servicer, FHA will not reimburse any amount not paid or repaid through the line of credit when acquiring the loan in assignment.

      So here is a new risk for HECMs in super lien states which are subject to HOA or COA liens, will the borrower have enough in the line of credit at assignment to pay all such liens? Do you believe lenders will simply ignore that risk?

      Risk can be offset by higher margins or rejection of the application. Right now what other way is there and can higher margins be used without questions regarding discrimination?

      This comment represents my own thoughts while my prior comment in another RMD post on the super lien proposal is more reflective of the thoughts of others.

      • Jim,

        I think you misunderstood my comment, I do not believe lenders will overlook this new risk, on the contrary. I believe there is a major problem in these states, in fact, I question whether or not a HECM can be made in these states where this problem may pop up!

        Am I misunderstanding your reply back to me? Let me know my friend.

        John

      • No, John, I probably just understood what you wrote. I agree with your latest comment.

      • Gents, can’t the RM act as the remedy for any backlog or unpaid HOA fees that would create our issue to begin with. Am I missing something here in that? If the new laws surrounding where HOA sits as a lien can’t we simply remove that obstacle through the proceeds, assuming there’s enough equity to make that happen?

      • wealthone,

        This is a condition for assignment, not endorsement. Be careful how you read the proposal.

      • In RI, the Supreme Court has ruled the HOA can foreclose on their superlien and wipe out a mortgage. In MA, court ruling in the “Drummer Boy” case stated the 6-mo superlien for HOA fees can run consecutively. In case you missed it, Liz Warren (and the rest of the MA contingent signed on) came out with a letter on May 12 to Mel Watt at the FHFA stating their wish to have the conservator back off on their letter that no lien can be superior to a mortgage owned by the agencies. It will be interesting…

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