It’s been less than four weeks since the Department of Housing and Urban Development made major changes to the reverse mortgage program, but brokers say they are already feeling the impact. September saw a flurry of activity as many worked to push loans through the pipeline before the changes to principal limits and insurance premiums took effect October 2. But now that the new rules are in play, many say activity has come to a near halt.
Jimbo King, a broker with McGowin-King Mortgage in Birmingham, Ala., says the September rush was a strain.
“It really crashed the whole system, from the counselors to the brokers,” King tells RMD. “Everybody was overwhelmed. Since then, turn times have slowed. I expect we’ll go dark for a while.”
Glen Smart of NOVA Home Loans in Tucson, Ariz., says he spent September working through his entire prospect list. Now that the rules have gone into effect, business is slow.
“After Financial Assessment, we went through the same thing. We were slow for a while before it picked up again. Right now new applications have crawled to next to nothing,” Smart says.
Smart says that he has had a number of prospects who have been negatively impacted by the new rules.
“We’ve unfortunately had a significant number of folks who would have been better served under the old principal limit factors. Now they have to bring in cash or it’s no longer effective,” he says. “It’s unfortunate, the number of folks who won’t be helped now. They are almost paying a penalty for the old book of business.”
Bracing for a decline
Many brokers say they are bracing for a drop in volume and revenue — at least in the near term.
Lynn Wertzler of Greenleaf Financial in Portland, Ore., says this is inevitable.
“There will be those marginal borrowers who would have been just barely feasible under the higher principal limits, and now they will be under,” Wertzler says. “So I think we’ll see those people drop by the wayside. Whether we’ll see a decline of 20 or 30 percent, I’m not sure, but I do think we’ll see a decline.”
Mac Tennant of Access Reverse Mortgage in Clearwater, Fla., says he’s tweaking his business model to adjust to a 40 percent decline in revenue. He says the higher upfront MIP is part of the problem.
“The principal limit is not a big deal, but we are getting pushback on the closing costs. The sticker shock that used to be there is back again,” he says. “We always gave closing cost credits and were able to reduce our pay in some cases to cover all of the customer’s closing costs. Well, under the new rules, that’s really tough to do. The only way to get that money is to jack the margin up, and that impacts principal limits pretty dramatically now.”
Tennant says brokers will end up taking a hit: “I don’t see any way that we’re not going to see a massive reduction in revenue per deal.”
King says some might be forced to either charge or increase origination fees to recoup a portion of the loss, but this too might be a challenge.
“When your loans have a high initial MIP on the closing costs, there’s pressure for us to give on the origination fee, but we’re already going to be making less on the back end,” King says.
Rethinking the marketing
Many say the new rules have forced them to reassess their marketing.
“The challenge is a lower return on investment for most lead generation now,” says King. “With a TV ad, for instance, you’re going to lose an additional 20 percent of the market under the new program, but they are going to charge you the same. So that gets tougher.”
Tennant says the new rules might force people to change their business models.
“I can’t see a company that is dependent on spending a lot of money on marketing in whatever manner—buying leads or lead transfers or TV or whatever they’re doing—how they are going to make it. I don’t see how that business model works anymore,” Tennant says.
Weeding out the uncommitted
Smart says that the tumultuous landscape might discourage part-time participants, and that is a positive.
“Because it’s a bit more complicated on the origination side with principal limit factors changing and the floor changing, it might drive the people who dabble in reverse mortgages out of the marketplace,” Smart says. “You’re not going to do one or two a year and have any idea what you’re doing. It’s going to be left to the people who do this full time. In that respect, it’s a positive. It’s going to drive out the ones and twos and leave it to the professionals.”
“I think this could thin the herd—get some of the onesies and twosies out of the business,” King says.
Written by Jessica Guerin