Ain’t No Rest for Reverse Mortgages: Industry Gasps for Breathing Room

When the Financial Assessment took effect April 2015, the consensus was that much of the criticism and negative press that have historically plagued reverse mortgages would be laid to rest. And while press coverage since then—for the most part—has viewed reverse mortgages through an arguably more positive lens than it did in the past, the image makeover hasn’t translated into an uptick in loan originations.

At last year’s annual National Reverse Mortgage Lenders Association (NRMLA) conference in San Francisco—held seven months after the implementation of the Financial Assessment—there was a prevailing optimism that the reverse mortgage industry had found some runway for growth, given that the most profound program changes had already been in place for the better part of the year.

HUD acknowledged the positive impact of the HECM book of business, which reported an economic value of $6.8 billion in fiscal year 2015 and contributed to the Mutual Mortgage Insurance Fund exceeding its Congressionally required 2% capital reserve ratio for the first time since 2008. The financial performance of the HECM portfolio was the result of a nearly $8 billion upswing from the previous fiscal year.

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“We reached this goal sooner than expected and large gains in the HECM fund are part of that,” said Kathleen Zadareky, then-deputy assistant secretary for single family housing at HUD during the NRMLA conference.

But while the industry was happy to accept the praise and finally have some breathing room from regulation, HUD wasn’t done tightening the screws on the HECM program.

Since the effective date of the Financial Assessment, the industry has seen a slew of updates to existing HECM servicing and loan assignment policies, as well as several new proposed rules for reverse mortgages—most notably, the May 2016 proposal that seeks to cap lifetime interest rate increases on adjustable-rate HECMs.

HUD is currently in the review period of its rulemaking process and there is no timetable for when the agency might enact any of its proposals at the moment, especially since HUD is now seeking public comments on possibly making loan assignments to the agency mandatory when HECMs reach 98% of their maximum claim amount.

As with many HECM program changes handed down from HUD, the impact is typically a slow burn marked by months of constrained origination volume as industry lenders adapt to the new way of doing business—not to mention the increased training expense to ensure compliance with the new policies.

So with even more regulations pending approval during a time when the industry is experiencing one of the lowest volume years in recent history, it looks as though the time to sit back and catch a breath— if it was ever here—has passed.

Written by Jason Oliva

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  • I don’t see that “constrained originations” really are impacted by just the potential of new rules from HUD. My clients and potential clients are really not affected by either HUD assignments or capping lifetime interest rates (which one program is already capped at 5). There are other possible changes that may affect future volume but this summer I have only seen an uptick in interest and I sincerely doubt any of my clients even know about the proposals. There are most likely other reasons like less originators wanting to deal with financial assessment and even financial assessment itself. Loan originations take twice as long now and every third file takes 2 months to close due to FA so let’s put the volume decrease reasoning where it belongs!

    • Melinda,

      If the lifetime cap on monthly adjusting HECM ARM note interest rates are reduced to 5% prospectively, investors will see this as less desirable and thus the related premiums on these monthly ARMs will drop. At that point if lenders want the prior and higher premiums (which they do), there will be an overall industry increase in all margins related to HECM monthly adjusting ARM note interest rates. Depending on the rates (LIBOR and CMT) for the related expected interest rate index on these products, Principal Limit Factors could drop dramatically from those available today making the loan less desirable to borrowers.

      But all of the foregoing is speculation since the changes have not even been adopted. If they are adopted we should learn their proposed implementation date when we are told of the adoption of the May changes.

      Without being told of possible margin increases, who would expect a prospect to be put off by the May proposed change to lowering the 10% lifetime cap to 5% on the monthly adjusting HECM ARM note interest rate. Without any other change to that product, most consumers would find the product more desirable, not less but will lenders be able to accommodate lower premiums since they are all but guaranteed to drop? That is very, very doubtful. Lenders will most likely respond with higher margins to reduce the risk of loss to HMBS allowing premiums to rebound.

  • Something has to give here. Between HUD and the Dodd-Frank bill with its creation of the CFPB, we have what we call an over kill!

    Take a little bit of common sense along with logic, one would come up with one heck of a big question? Is HUD, along with the CFPB purposely trying to sabotage the HECM program. Are they trying to purposely do away with a product that could improve the quality of life for our seniors? Not to mention the value of the HECM to aid in the extension of life in some cases for our seniors?

    I put the CFPB in the equation because since the passage of the Dodd-Frank bill by the Obama administration, the CFPB has over regulated our entire financial system! Not only that, they have also been the instigator behind many moves HUD has made on the reverse mortgage industry!

    The answer is obvious, the Federal Government through its many arms they have lurking out there needs to get out of our life’s and let our industry and others make the attempt to grow, proper and plain old survive!

    All I can say at this point is that we need to call on NRMLA for help. We need representation to fight for us and to stop this over regulating process.

    I am willing to volunteer my time and help if the powers to be at NRMLA want me to help and I know many of you reading my posting will join in and do what ever we you can.

    We need a strong organization to take the lead, I am speaking for myself but I am also confident I am speaking on the behalf of many of you as well. I say we will support NRMLA by writing letters and making phone calls, in short, we will do what ever we have to do to put a stop to this butchering process!

    Or seniors are suffering the most but many good people in our industry are becoming discouraged and starting to leave the reverse mortgage space, we can’t afford this to continue on, join me to call on NURMLA to take the lead, we will follow, we want to save our careers and a valuable, much needed program for our seniors!!!

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

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