In a landscape fraught with declining origination figures and new rules, reverse mortgage lenders have more than a few suggestions for improving the product central to their business.
Many would start with at least some reversal of the program changes from the Department of Housing and Urban Development, which last fall inaugurated an overall reduction in principal limit factors and an updated insurance premium structure.
For Rick Sweeney, a reverse mortgage specialist in Nevada and northern California, the loan’s new standard upfront premium is just part of the problem: “Worse is the lower limit factors, which result in far less dollars available to senior borrowers,” he said.
Sweeney says one “house-rich” potential borrower who would have qualified for a reverse mortgage a year ago is now in danger of losing her home. Even though she is employed, she can’t afford the $25,000 down payment, and she would be charged under HUD’s current criteria.
He agreed with a recent report from the Brookings Institution, which argued that low-risk borrowers with smaller relative borrowing amounts shouldn’t have to subsidize higher-risk borrowers. He believes a reversion to a multi-tiered system could attract a wider range of borrowers by enabling them to take out a smaller initial amount at a lower cost while maintaining access to a larger line of credit for future needs.
While Harlan Accola, director at Fairway Reverse Mortgage, agrees that fees are expensive, he doesn’t think they’re the main problem. “When other companies have given away HECM loans with very low or no upfront costs, that didn’t increase industry volume,” Accola said.
But he notices a need for more private proprietary products when he trains reverse mortgage lenders throughout the country. “It’s a dramatically different client we’re working with now than 15 years ago,” he said, one that would benefit from a broader diversity of offerings.
The industry has already heeded that call: Reverse Mortgage Funding rolled out a new proprietary loan product at the beginning of June, while Finance of America Reverse recently announced additional options for its private HomeSafe loans. Longbridge Financial has also hinted at the upcoming release of a new non-HECM reverse mortgage loan, joining the wave of proprietary options hitting the market in the wake of HUD’s October changes.
It’s not just the loan that could be improved but the method of delivering it. Even simple upgrades in technology could streamline the borrowing process for seniors burdened with paperwork. During both the application and closing process, Christine Jensen, a Fairway branch manager in Denver who specializes in reverse mortgages, said that older clients sometimes take breaks from signing paperwork to give their wrists a rest.
“I think the electronic signing process is long overdue,” Jensen said.
Reverse lenders have their own struggle: a lack of consistent and clear guidelines. In the forward mortgage world, a clear handbook exists, Jensen said.
Federal Housing Administration guidelines function like an operating instruction manual for originators on the forward side. When questions arise, “the handbook tells us what is acceptable and whether documentation meets certain criteria,” she said. “On the reverse side, we have only a collection of mortgagee letters we’ve been using to cobble together guidelines about what we think the FHA is telling us. We’re left to guess in far too many situations.”
That lack of clarity is yet another reason industry professionals would welcome more proprietary offerings not beholden to HUD. A year ago, most senior homeowners in discussions with Sweeney told him a HECM loan made economic sense for them. “Now eight out of ten people I talk to say it’s not a good choice,” he said.
“There needs to be competition in the marketplace to better service more people who can benefit from this product,” he said.
Written by Clare Curley