NEW YORK — Recent regulatory changes to the Home Equity Conversion Mortgage application process have had a visible impact on the complexion of the program, according to a regular update from Department of Housing and Urban Development representatives.
From fixed to adjustable
Demand for fixed-rate reverse mortgages, for instance, has dropped substantially since the implementation of Financial Assessment rules in 2014: After accounting for well more than half of all HECMs endorsed in 2013, fixed-rate products only represented less than 20% of all reverse mortgages the following year, with a continuing downward trend through February 2017 as demand for adjustable-rate products spiked in turn.
But the type of adjustable-rate loan has shifted in just the last few years as well. Speaking at the National Reverse Mortgage Lenders Association’s eastern conference and exposition in New York City last week, Federal Housing Administration official Karin Hill noted that annually-adjusting ARMs only accounted for 2.4% of all endorsements in 2014; in the first two months of 2017, these products represented a full 86%.
Mike Gruley, the executive vice president of reverse mortgage lending at 1st Nations Reverse Mortgage in Ann Arbor, Mich., said borrowers increasingly prefer annual adjustable-rate products amid rising interest rates.
“Many feel that if rates are likely to rise, then annual adjustments are better than monthly adjustments,” Gruley said in an e-mail to RMD, adding that consumers also generally prefer the idea of a single rate adjustment per year instead of 12.
Refinances on the rise
HECM refinance loans are eating up a bigger chunk of the total endorsement pie, according to Hill: Once just 2.6% of all reverse mortgages as recently as 2012, refi loans accounted for 11% of the total in 2016 and 12.9% of loans endorsed through the end of February 2017.
“We continue to have concerns over churning, whether the refinance provides a meaningful benefit to the borrower, and the quality of appraisals,” Hill said.
Win, lose, and draws
The proportion of HECMs with large initial cash draws has dropped substantially over time. While pulls of 90% or more are still common with fixed-rate products, borrowers aren’t tapping their adjustable-rate loans at nearly the same rate: Citing statistics from 2016, Hill noted that 61% of adjustable-rate products have draws of 60% or less.
Hill also presented data that showed a slight uptick in the average borrower age over recent years, rising to just about 72 in 2017, though she also noted that this is still lower than the average of 76 back when the program was launched.
“I think this trend really emphasizes the importance of measured access to funds over time,” Hill said, adding that early large withdrawals puts borrowers at risk of exhausting the line too early and potentially not having the funds to cover long-term medical expenses, while also putting strain on the Mutual Mortgage Insurance (MMI) fund.
Early positive signs for 2017
Hill acknowledged that endorsements were down last year, citing a 16% drop in volume and a 9% dip in the dollar value of loans endorsed. So far in 2017, however, endorsements are up about 2% over this point in 2016, with a 9% gain in total dollars.
By the numbers
- 1,018,998 HECM endorsements from October 1, 1989 to February 28, 2017 for a total of $241.6 billion
- 382,492 terminated loans, or $83.6 billion
- 580,238 actively insured loans, or $144.8 billion
- 56,412 active notes assigned to HUD, or $13.2 billion
Written by Alex Spanko