Reverse Mortgage Must-Reads: MMI Fund’s Fate, AAG Moves Forward

There’s just about a week to go before new reverse mortgage principal limit factors and insurance premium rates go into effect, and the industry is currently scrambling toward the finish line. If you’ve been too busy to catch up on the rest of the news from the world of Home Equity Conversion Mortgages, check out our weekly roundup of must-read stories from the last seven days.

New Regulations Raise Questions About Reverse Mortgages and MMI Fund — When rolling out the more restrictive principal limits, the Department of Housing and Urban Development cited the HECM’s drain on the Mutual Mortgage Insurance Fund. But some experts —  including President Trump’s pick for Federal Housing Administration commissioner — believe that including reverse mortgages with the rest of the loans in the fund muddies the picture of both products.

Reverse Mortgage Giant AAG Planning to Launch Forward Division — American Advisors Group placed a job listing for forward mortgage professionals ahead of a planned October roll-out. The great leap forward marks another potential expansion for the industry leader, which also recently launched a residential real estate brokerage firm.

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What HUD’s New Rules Mean for the Reverse Mortgage Industry — Bookmark this link as a quick reference on the changes coming to the reverse mortgage space, from the disappearance of the principal limit factor “floor” to the ins and outs of the new mortgage insurance premiums.

Could Residential Sale Leaseback Compete with Reverse Mortgages? — One startup thinks it can come after the HECM with an idea from the world of commercial real estate: sale-leasebacks, in which homeowners sell their properties to an owner who then becomes their landlord. The firm, EasyKnock, says the commission and rent costs end up being comparable to HECM fees, but the homeowner can unlock significantly more home equity.

How Elder Law Attorneys Can Become Key Reverse Mortgage Partners — Elder law attorneys can provide connections to older Americans who might need to tap into their home equity — but educating partners about the product is also key to success.

Around the web

Writing in Forbes, longtime HECM proponent Jamie Hopkins characterizes the hand-wringing over the new reverse mortgage rules “an initial overreaction,” noting some potential benefits. For example, as reverse mortgage lenders increasingly compete on rates in the absence of the principal limit factor “floor,” consumers could end up saving money in the long run. Hopkins, a professor at the the American College of Financial Services in Bryn Mawr, Pa., also posits that the slowdown in the growth of HECM credit lines will help bolster the program going forward.

“This is a welcome change for the program because reasonable line-of-credit growth limits are needed to prevent the program from insuring unreasonable amounts in the future,” Hopkins wrote.

Read Hopkins’ full take at Forbes.

Written by Alex Spanko

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  • While Mr. Hopkins does a good job of describing what is taking place on October 2, 2017 for new HECM applicants, here are some tweaks to his presentation.

    The reason why the first draws on HECMs will change little is because of the first year disbursement limitation rule from HUD that basically limits the first year disbursements to the greater of 1) the total amount from a specific list of mandatory obligations plus 10% of the available proceeds at closing or 60% of the total available proceeds at closing. In no case can the first year disbursements exceed the total proceeds available at closing.

    Although cited as fact (“…bringing down the total compounding rate for most borrowers”), it is unclear which new borrowers would not obtain a lower total compounding rate when ongoing MIP drops to 0.5% for new applicants. “For most borrowers” seems like an unnecessary caveat since even interest costs drop if the interest rates before and after the 0.5% MIP rate change go into effect are the same for a HECM prospect. If the interest rate is the same, a drop of the MIP from 1.25% to 0.5% on a $300,000 loan balance would $2,250, not $1,000.

    Even if the interest would be the same when the ongoing MIP is 0.5% or 1.25%, interest costs would be more when ongoing MIP is 1.25%. Assuming all other other things being the same, the balance due each month would be higher when the ongoing MIP is 1.25% increasing the cost of interest throughout the life of the loan. So by lowering the ongoing MIP from 1.25% to 0.5% will be lower interest costs all other things being equal. On a loan with a starting balance due of $275,000 and an average effective interest rate of 4.9%, the interest cost savings over 10 years would be $7,376. So not only goes the Ongoing MIP drop by $29,151 but interest costs are lower as well reducing the balance due by a total of $36,527.

    Most would describe the changes as important for the program without substantially changing program basics for consumers. In this case the goal is to reduce the risk of higher balances due without substantially changing the fabric of the program. These changes seem to reach those lofty goals.

  • Perhaps when it comes to the MMI Fund, it is not what happens to the MMI Fund that is the issue as suggested by the title to this post but rather the fate of the HECM program within the MMI Fund that should be of concern.

    Someone in a comment to a post on this subject suggested that we kick the problem down the road “efficiently.” What a joke! It is because of all of the kicking down the road year after year throughout the Obama years that we are in the situation we are in. Kicking “the can down the road” efficiently or not, has created more and more critics discussing the issue and broadening the debate. Perhaps someone with some actual understanding of the situation will rise up with a good compromise that will keep the program going without harming forward mortgage programs.

    Former FHA Commissioner Montgomery seemed to provide a great suggestion by putting taking the entire portion of the HECM program in the MMI Fund and place it back in the GI Fund. I hope the annual actuarial review will continue to be performed and posted on the HUD website; it is quite insightful.

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