Wealth Management: Are Reverse Mortgages Planning a Comeback?

Reverse mortgage volume has fallen sharply since its heyday prior to the housing market downturn, but several developments in recent years may position these loans for a comeback, says a recent article from Wealth Management.

“Reforms put in place by the federal government several years ago have led the reverse lending industry to target more affluent potential borrowers—the households that tend to work with planners,” states the article. “And some retirement researchers have been making the case that planners should revisit Home Equity Conversion Mortgages (HECMs) as a key component of client retirement plans.”

But even with the new program changes, some argue that HECM reforms create barriers for both affluent households and those with limited means.

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“The truth is, HECMs became more restrictive and expensive—they are worse overall, period,” says Michael Kitces, director of research for Maryland-based Pinnacle Advisory Group, in the article. “The new rules reduce access for people with limited means, but it’s also not a great-looking deal for the affluent.”

Read the full Wealth Management article here.

Written by Jason Oliva

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  • “Are reverse mortgages planning a comeback?” What a strange question as reverse mortgages do no planning.

    As stated time and time again, with the loss of Savers, several well recognized financial planners have become less enthusiastic about HECMs. Imagine how disappointed Michael Kitces would have been had he examined HECMs prior to 10/1/2009 but after 4/30/2009. The increase in the ongoing MIP rate would have disappointed him even more.

    We need to stop pretending that the “NEW” HECM is so much better than HECMs of the past. They are not.

  • Michael is correct in that the so called “reforms” only reduced available loan proceeds and increased the costs so saying they are safer is laughable, however his thinking gets a little suspect when he states that hecm’s “aren’t such a great-looking deal for the affluent either”. The HECM standby line of credit has a viable place in EVERY portfolio regardless of what Mr. Kitces thinks.

    • hecmvet,

      Your statements are those of a rookie. Absolutes make people run away. Read the comments of Dan Moisand, CFP at

      http://www.fa-mag.com/news/reverse-mortgages-ain-t-all-that-28838.html?section=3

      The Standby HECM is very questionable for those with portfolios of less than $50,000 (and more) and those with over $10,000,000. How small this range should actually be is a question of the prudence and cash position of the borrower.

      We need to be less general and more direct in our approach. Endorsements support the position that there is a general lack of enthusiasm for financial assessment. Will we grow out of this inertia? Yes, but as things stand right now, very, very slowly.

      • Don’t be silly now Cynic…you don’t actually agree with this guy do you? Please feel free to consult with your brethren and present the range of circumstances where a hecm standby line of credit would not be prudent.

  • From a recipient’s point of view, the latest HECM rules changes are no improvement at all. Unless one considers “saving people from themselves” by limiting upfront money and installing the credit check/means test an improvement; but that’s not exactly a free market concept, it’s more government regulation on private property rights.

    As with about 90% of the documents signed at an HECM closing, the new rules only serve to “cover” the lenders’ interests, not the recipients.’

    The lender has control of insurance claim money over $10,000, yet the lender pays no homeowners insurance premiums, for example.

    Personally, I have no problem with the new rules changes, because I have the necessary credit and the means required, but to characterize these changes as an improvement for the presumed, responsible recipient? Where is it? I don’t see it.

    • Ed,

      Borrowers do not pay MIP costs, lenders through their servicers do; however, borrowers reimburse lenders for specific MIP costs. When lenders do not require reimbursement, then generally the cost is buried in the margin.

      Your observations are similar to many of us.

      • goodness Cynic, you sharpen an axe till it’s dull. Being needlessly contrary is not conducive to reasoned discussion.

  • I’ve said it before and I will continue to say it: This industry is it’s own worse enemy. Here we have a positive article that could have provoked a great string of conversations for several days and instead we have worthless pabulum and negativity.

    Cynic, Borrowers do not pay MIP costs? Well then I guess that line on the HUD 1 that’s says MIP 2.5% must be a typo! What a ridiculous statement.

    Ed, if the borrower takes less than 60% of the first years UPB the MIP is reduced from 2.5% to .5%. That’s an 80% discount. Not quite as good as the SAVOR but a significant savings to higher income borrowers who do not have an immediate need for all of the funds. You don’t consider that an improvement?

    Hecmvet,- by decreasing the allowable upfront funds we created the .5% MIP option and the greatly increased the chances of uneducated borrowers depleting their funds too quickly. I don’t see that as “laughable.” By the way, huge kudos on the “goodness Cynic, you sharpen an axe till it’s dull” comment. I laughed out loud!!!
    And we haven’t heard from the other 2 dark clouds of our industry yet. I won’t mention their names but we all know who they are…LOL
    And people wonder why there are so much fewer comments on these great articles then in the past. This string is a perfect example why!
    I think we should have FA for people who want to make comments on these links. Like…if you don’t close at least 2 reverse mortgages a month, no one wants to hear your opinions. LOL!
    That last comment was meant with all due respect of course.

    • Mike,

      Have you never seen a HUD-1 as designed by HUD? It seems you have NOT. Here is where you can actually find one:

      https://portal.hud.gov/hudportal/documents/huddoc?id=1.pdf

      Please notice it is the official form as designed by HUD. Where is that 2.5%? HUD allows the fiduciary handling the funds to amend the form without changing its basic design and structure as needed.

      So please do not try to blunder your way through things you do not understand. A Form HUD-1 is an accounting form, not a legally binding contract between HUD and a borrower. By the way upfront HECM MIP can be as low as 0.5% and many borrowers pay nothing!!

      If my axe is blunt it is because I do not want to kill anyone but rather am doing my best to get someone’s attention.

    • Hi Mike,

      I just read through the HUD-1 posted on the HUD website and there is no such thing as “MIP 2.5%.” It seems like the form you were reading was altered by the person completing the form. The form was made to be modified for the ease of the borrower understanding what the line items actually are.

      I would have thought you would have known that. Most of us familiar with reviewing FHA loans do. For the sake of the public we should only state what we know to be true.

      If you think about it, it does not even make sense that HUD would create a line as you claim since upfront MIP could be 0.5%, $0, or any other number equal to or less than its actual cost in accordance with agreement between the lender and the borrower. Also the HUD-1 is used for FHA forward loans, VA and other loans.

      We need to be careful about trying to disprove others on a public forum with things that are not true.

      • Maven,
        A Closing Statement is referred to as a HUD 1. How can you not know this?
        And on every closing statement on a reverse mortgage there is a line that says Mortgage Insurance. and that line is either 2.5% of the appraised value or .50% depending on the UPB.
        What are you talking about????

      • Mike,

        Once again I went through the HUD-1 (by the way the name of the form is HUD-1 not HUD 1), there is NO 2.5% on any of the three pages of that form. You could make this easier on all of us, if you simply named the line where this magic 2.5% can be found.

        By the way the upfront MIP is not any percentage of the appraised value. It is either 0.5% or 2.5% of the Maximum Claim Amount which in most cases is the appraised value but with a H4P it can not only be the appraised value or the lending limit but it can also be the purchase price of the home. You should become familiar with how the upfront MIP is calculated for H4P.

        It is about time that you get familiar enough with the HUD-1 so that you know the line number for MIP and on which of the three pages of the HUD-1 it can be found. You will find the HUD-1 as published by HUD at https://portal.hud.gov/hudportal/documents/huddoc?id=1.pdf

        I will clue you in right now. HUD does not publish it with a 2.5% anywhere on the form. No doubt your application system puts that in the computer print instructions.

        By the way, even The_Cynic got this right.

        Have a great day.

  • Michael,

    You said it all my friend, you said it like it is and I applaud you for that. I agree with everything you said!

    When are we ever going to start looking at things in a positive way? Just look at the article from Wealth Management, why can’t we take a positive approach. Just maybe, the slow down in business has a lot to do with our attitudes and negative thinking.

    I am not saying all of it has to do with that but it sure counts for a lot of it. The article covers a lot about the lack of knowledge on the part of our seniors about the HECM, they are confused and for good reasons.

    We have a more difficult product to understand in today’s world, we that are in the industry that counsel our senior clients daily need to have the knowledge to educate our seniors, do we have enough knowledge to do that? I don’t know, I find that I am smart enough to know that I am not smart enough and i find I am learning something new everyday about our space!

    Michael Banner’s comment say’s a lot. I have a lot of respect for everyone that has made their comments on this article but Michael stated his position with a lot of common sense behind it!

    I said all I am going to say on the subject but with one exception, all of us or I should say that many of us need to embrace the changes we are facing in a positive way and get on with business!

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

    • John,

      The problem is that with a complex product common sense gets you in trouble. Mike shows he has never read the HUD-1 as designed by HUD. It seems that he wants us to accept that what he reads comes directly from HUD and has not been doctored by the agent handling the funds in accordance with the manner HUD allows that accounting form to be adjusted.

      I am sure the reality of facing total endorsements of less than 50,000 (if that’s what it is) creates negativity, especially since it looks like this will be the worst year for endorsements in over a decade. But is that all this is?

      It seems as if when an author recommends our product it does not matter what that author writes. It can be correct or absolutely wrong but people get upset when what the author of a positive article writes is questioned.

      Several writers (certainly not the majority) including Martin Andelman who do not desire to misstate their arguments have thanked me for criticizing their arguments when they are off the wall or just plain wrong. That happened between Martin and I earlier this month over on HECM World. His last comment is to thank me for helping him get his facts straight.

      Here Mike makes an off the wall remark about the HUD-1 to try to belittle my argument. HUD does not proforma the HUD-1 with a 2.5% MIP for HECMs; a fiduciary of funds simply filled in the form as permitted. Unlike Martin, Mike should know better than to make such false claims. Mike absolutely should be held to a much higher standard since he makes his income from HECMs.
      Like most of us, right or wrong, I appreciate Martin’s voice in the public domain.

    • John,

      The only thing that Mike said that I could check was the HUD-1. What he said was not true. HUD does not publish the HUD-1 with a line showing “MIP 2.5%.” You can go to the HUD website and check it for yourself. The people who prepare these forms are free to change them so that they are easier to understand. The HUD-1 is not only used for HECMs but for FHA forward loans, VA and any number of other loans.

      So at least as to the HUD-1, what Mike said makes no sense let alone common sense.

  • Cynic
    This is getting downright stupid. Do I have to explain to you the benefits of a standby line of credit? Who in their right mind would get a hecm strictly to “protect” a $50,000 portfolio and does this mean that a hecm is not a viable option? On a lighter note I guess I can agree with you if you choose to include in our discussion “seniors who have millions in their portfolio”. Too corny for me.

    • hecmvet,

      I am merely requesting that YOU defend what YOU said in YOUR comment: “The HECM standby line of credit has a viable place in EVERY portfolio regardless of what Mr. Kitces thinks.”

      Are you now trying to worm your way out of it? You claimed that it “has a VIABLE place in EVERY portfolio.” (Viable changed to all caps for emphasis). Now that you see that is as phony as a $27.55 dollar bill, you want to increase your claim to look “smart?”

      Your quote is full of hot air. A good hit with a sharp pin and poof the argument dies.

      I am not letting you off the hook on this one. Please go back to what you claimed. Do you know even how to defend that claim? It is the viability of the Standby line of credt (whatever that is) in EVERY portfolio I have addressed from my first reply. (Mr. Evensky named the strategy the Standby Reverse Mortgage because there are so many strategies with lines of credit but I do not expect you to know that.)

      Your fame for deflection is understated.

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