Reverse Mortgage Changes Bring Rate Competition, Program Stability

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.”

Smart agrees.

“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

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  • Articles like the above are what results from too much optimism. To say I am skeptical is an understatement.

    The first reaction by lenders was to fight to keep margins higher than expected. Fundamentally it would seem that competition would dictate lower margins but that in no way is a prediction.

    Is the HECM program stable? We need to wait and see.

    Will the program survive? Without a doubt. Will we see lower endorsements in fiscal 2018? Per John Lunde, the answer is yes.

    As to predicting particular lenders or TPOs that will do well in the transition, that is far beyond my pay grade.

  • Interesting article, interesting comments! I agree to one extent with Mac Tennant but I disagree with him on the lowering of the PLF. As far as I was concerned, that was unnecessary and does more harm than good for the HECM and our seniors!

    I agree with Glen Smart of Nova on the H4P. With the announcement last month of no longer requiring a certificate of occupancy prior to application on an H4P, this should open many doors.

    It still will not be as easy as it sounds but it will make a difference to those who focus on the H4P and approach the real estate industry properly!

    I see both Tennant and Smart feel they will see an exit of many players in the market, I tend to agree with that assumption. As far as a major competition battle on interest rates to minimize the principle limit impact, time will tell. I don’t plan to set the stage for that until it actually happens!

    The change is what it is, we accept it, find new ways to beat it or move on and out! There are new markets out there for us, we need to set our expectations in different directions.

    We need to be more innovative in this new market of changes. We still have a great product that has many uses for our seniors, maybe it is time we set our sights at higher and different levels.

    John A. Smaldone

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