Even though the new reverse mortgage rules regarding principal limit factors and mortgage insurance premiums might create a tumultuous environment in the near term, some in the industry say they support the changes.
“I personally think the changes were necessary and they temper the risk to FHA,” says Mac Tennant of Access Reverse Mortgage in Clearwater, Fla.
“There will be better equity retention because of the reduction in ongoing MIP, and that’s definitely going to be a better scenario for the heirs and for many of the borrowers who end up selling the house themselves. I think the program is much more consumer-friendly now,” Tennant says.
Glen Smart of NOVA Home Loans in Tucson, Ariz. says he intends to focus on the HECM for Purchase to drum up revenue as the industry adjusts. Last month, HUD announced that it would no longer require a certificate of occupancy prior to application on an H4P, a move that many have spent years lobbying for.
“They’ve taken away the handcuffs and made it a lot easier,” Smart says. “You’re going to have more acceptance among builders and Realtors now, and we’re excited about that.”
Interest rate competition
Under the new rules, many say they expect to see lenders compete on interest rate.
“I think the pressure to get more available funds is going to force interest rate competition like we’ve never seen to minimize the principal limit impact,” Tennant says. “Time will tell, but the new competition is going to be how low can you get your interest rate margin to maximize principal limit.”
“What’s going to be interesting is whether or not lenders are going to get obscene with the rate,” he says. “As volumes drop, I think people are going to take advantage of the fact that the floor went away to offer these loans and almost lose money to keep volume in place. We’ll go through that for a short period of time and that’s unfortunate.”
Tennant says he thinks the competition will drive some players out.
“I think you’re going to see an exodus of companies from the business. I just can’t believe everybody is going to be hanging around with the competition going the way I think it’s going to go. It’s an interesting time in the business,” he says. “I think for six months you’re going to see a lot of turmoil and then there’s going to be fewer players and ultimately a more stable market.”
Lynn Wertzler of Greenleaf Financial in Portland, Ore. says the rules also impact the target audience for marketing materials.
“We’re moving even further away from the original HECM borrower profile from the early ’90s—the needs-based borrower who needs all the proceeds they can get. If they even qualify under Financial Assessment, they are probably going to have a more difficult time now,” he says.
“But on the other hand, trying to market to the wealthier, higher-net worth homeowners who may not need any initial funds and might use a reverse mortgage line of credit as part of a future financial plan will be tougher because of the higher upfront MIP. I think there is some thinking to be done on the marketing strategy,” Wertzler says.
Rolling with the changes
While the going may be tough for the next several months, many brokers say they expect to weather the changes, just as they have always done.
“Third-party originators who are really focused on reverse can deliver the product at a lower cost, more efficiently, and with better terms to the borrower. We have a role in the marketplace,” says broker Jimbo King of McGowin-King Mortgage in Birmingham, Ala. “We’re here, selling on service. There is going to be some adjustment, but we always seem to survive.”
“Right now, we’re catching our breath and trying to get through the rush of folks who applied before the changes,” Smart says. “It’s okay. We’ll all survive. We did after Financial Assessment, and we will after this.”
Written by Jessica Guerin