It was the one question that Joe DeMarkey, strategic business development leader at Reverse Mortgage Funding, had to repeatedly answer at the National Reverse Mortgage Lenders Association’s annual conference in San Francisco last week: Did some industry leaders know about the lower principal limit factors before they were announced in August?
“No one knew,” DeMarkey said in a speech with other industry heavyweights, including American Advisors Group founder and CEO Reza Jahangiri and Finance of America Reverse president Kristen Sieffert. “No one knew that this was going to happen. It was a confluence of events that took place that started a year ago, when the actuarial review took place.”
Department of Housing and Urban Development officials indeed cited that review, which showed the Home Equity Conversion Mortgage program had an economic value of negative $7.7 billion, when rolling out the new PLFs and adjustments to mortgage insurance premiums. That number also paled in comparison with the negative $14.5 billion value from the fiscal 2017 review, released after DeMarkey and the other leaders spoke at the conference.
No matter the actual number, DeMarkey pointed a finger at the Federal Housing Administration’s backlog of loan assignments as a reason for some of the HECM program’s financial woes.
“The back-end problems that FHA has as more of these loans are being assigned to them has created a financial strain, and without a HECM program that is fiscally sustainable, we don’t have an industry,” he said. “So we have to solve this problem.”
DeMarkey also cited the historically slow appointment of key industry officials at both FHA and HUD under President Trump, noting that FHA had sought NRMLA’s assistance in reacting to last year’s grim actuarial report — but that there were few officials seated to hear their suggestions.
Historically, FHA had pulled what DeMarkey called the “easy levers”: changes to PLFs and mortgage insurance premiums.
“We didn’t want them to do that,” he said. “We wanted them to be more thoughtful, more responsible, and take a look at other program changes.”
But without a strong team in place, in DeMarkey’s telling, the FHA resorted to its old moves.
“They ran out of time. They had to make changes, so they made the easy changes,” he said. “They pushed and pulled the levers.”
Still a path forward
DeMarkey — along with fellow panelist Michael Kent, president of Liberty Home Equity Solutions — insisted that a path forward exists for the federally backed reverse mortgage industry.
Kent, for instance, echoed other voices in the industry by pointing out that the average borrower won’t necessarily know that he or she stands to access a smaller amount of cash than before October 2.
“Do you sell something you have, or do you sell something you used to have?” Kent asked. “We can’t do that anymore. We’ve got to sell what we have to sell. There are some very significant benefits to the borrowers under this new construct.”
For instance, the fact that borrowers preserve more equity over time under the new PLFs can be a selling point, provided originators emphasize the long-distance view when working with potential clients.
“Above and beyond that, we probably need to look at new avenues to create customers,” Kent said, suggesting developing deeper connections with community banks and credit unions.
He concluded his comments with an upbeat view for the future of the program, even amid a predicted short-term downturn.
“I anticipate volume and unit fundings will drop, and we’ll kind of get our bearings again — we’ll find solid ground,” Kent said. “I think the best days of the HECM program still lie ahead.”
Written by Alex Spanko