Allowing homeowners to access more equity and changing the face of life expectancy set asides (LESAs) — those stand as some of the main changes that loan originators would like to see in the reverse mortgage program.
The reverse mortgage industry, already complex, exists in state of near-constant reform and revision as the Federal Housing Administration and the Department of Housing and Urban Development continually tinker with the rules governing the financial tool. Reverse mortgage originators, of course, have their own ideas about the how to improve the industry.
A common theme in those wish lists involves removing some of the barriers between borrowers and their equity.
“An increase in the principal limit factors, allowing the senior to access a little bit more in equity, would be a big help to those seeking a Home Equity Conversion Mortgage,” John Leer, a reverse mortgage banking officer with KleinBank, tells RMD.
Such an increase would open the market to more borrowers, says Lisa Nass, a reverse mortgage originator with Gersham Mortgage.
“The recent decrease to the principal limit has really affected potential customers. Some who once qualified just six months ago do not anymore,” Nass says.
LESA guidelines and requirements also need significant changes, reverse mortgage originators agree.
“Oftentimes borrowers with good credit history, but perhaps a bump or two in the road, are required to have a full LESA,” says Alina Passarelli, director of reverse lending at Peoples Home Equity Mortgage Lending, echoing an idea common among loan originators contacted by RMD. “We’d like to see more widely used partially-funded LESAs and clear guidelines for underwriters to follow.”
Passarelli and many of her peers also would like to see changes to the relationship between PLFs and HUD’s Mutual Mortgage Insurance Fund (MMI), which has undergone significant fluctuations in recent years. Department officials cited the HECM program’s drag on the MMI as a specific driver of the recent PLF declines; in fiscal 2016, HECMs had a net economic value to the fund of $7.7 billion, a deficit that ballooned to $14.5 billion in fiscal 2017.
Multiple leaders — including HUD secretary Ben Carson and Mortgage Bankers Association president David Stevens — have advocated for the complete removal of HECM insurance from the MMI fund.
“If the value of the MMI fund is measured on HECMs alone and this value was used in conjunction with the existing PLF variables, we feel the MMI fund health would be consistently maintained (rather than retroactively) and also create HECM options for more borrowers,” Passarelli says.
Written by Thad Rueter