With less than a month to go until the Department of Housing and Urban Development’s new reverse mortgage rules come into effect, many in the industry have predicted a scramble to the finish as potential borrowers attempt to lock down loans before limits narrow and insurance premiums rise.
On the ground, as early as two days after the mortgagee letter came down from HUD on Tuesday, counselors were seeing increased volume.
“Yes, I am swamped,” said Frank Kautz, a housing counselor and staff attorney at the Massachusetts-based Community Service Network, which serves residents in multiple northern suburbs of Boston.
By Thursday, Kautz had filled up almost two weeks of counseling sessions, with prospective Home Equity Conversion Mortgage borrowers attempting to claim “emergency” slots. Kautz has been prioritizing the ones who stand to lose the most from the new regulations, which will generally lower principal limits by 20% and change the insurance premium structure to a flat upfront rate of 2.0%; previously, borrowers seeking less than 60% of their claim amounts would pay 0.5% upfront, while those looking for larger loans would pay 2.5%.
“This is going to hurt a lot of people, because that change in what they can get out of it makes a big, big difference,” Kautz said, placing particular emphasis on borrowers who use HECM proceeds to pay off existing mortgages. Some of those clients, Kautz said, won’t be able to accomplish that goal with the new principal limit guidelines.
At Housing Options Provided for the Elderly — or HOPE — in St. Louis, director Buz Zeman said it was too early for a major rush, but that his team fully expects a major increase in September. The flat initial premium rate will take away one of the major topics he counsels potential borrowers on: the difference between the initial insurance premium for smaller and larger loans.
“It’s moot now, I guess,” Zeman told RMD. “A lot of lenders wouldn’t bring that up, and it’s an important part.”
Like Kautz, he also expressed concerns about the effects the new regulations will have on borrowers who are in the application process.
“It’s just that people get less money, and the people who used to get a big break for taking out less money in the beginning — that’s a real jump from 0.5% to 2%,” Zeman said.
Too soon to see application bump
It may also still be too soon to tell the scope of the application bump ahead of the new guidelines. Megen Lawler, president of reverse mortgage document-management and software firm BayDocs, LLC, said she hasn’t seen a “huge surplus” of applications yet, but anticipates a pick-up during the next few weeks.
“I think the industry is still digesting it, but it’s kind of all at once with the final rule implementation and then with this new change,” Lawler said, referencing the separate set of program updates — which, unlike Tuesday’s announcement, have been long anticipated — set to take effect September 19. “There’s just concern out there right now.”
In response to the perceived wave ahead, the National Reverse Mortgage Lenders Association on Friday issued an alert reminding its members that originators can’t order a Federal Housing Administration case number until the borrower completes mandatory counseling; the new rules apply to all case numbers issued on or after October 2.
“Violating this regulation may jeopardize the insurance on the loan,” NRMLA warned in the message to members, adding that a premature request would constitute a violation of its ethics code and could result in sanctions from the trade group.
Kautz expressed disappointment with HUD’s decision to give the industry only one month to process the news. The entire point of counseling, Kautz said, is to provide detailed information and then give time for potential applicants to think about it — a luxury they no longer have.
“I hate to tell people that they have to rush to think about doing this. I like to give people a really long time to think about it,” Kautz said. “But right now, they can’t.”
HUD should have given lenders, borrowers, and counselors at least until November to sort out all of the implications, Kautz said — though he also admitted that he still would have found that to be too short a timeframe.
“Why so soon? You gave us less than a month,” Kautz said. “This has been talked about for ages.”
Written by Alex Spanko