In light of the changes made to the reverse mortgage product over the past 15 months, observers and originators in the reverse mortgage business find themselves at a crossroads.
Some express frustration over opportunities having been affected by rule changes implemented to principal limit factors (PLFs) in October 2017, while others express encouragement by recent developments like the growing prevalence of new proprietary product offerings and the business’ ability to adapt to new changes.
“I’d love to say things are going great, but it’s been a year since the rule changes that put a wrench in the product, said Sue Milligan, Certified Reverse Mortgage Professional (CRMP) at Bank of England in Metairie, La. “We have to stay positive and find different ways for the business model to work.”
Milligan isn’t alone in her feeling that the traditional originator model is still reeling from the rule changes, particularly in more residential areas that either cannot or would not benefit from jumbo proprietary offerings.
“[Business will] be better than 2018,” said Rich Pinnell, CRMP at Vitek Mortgage Group in Redding, Calif. “We have to adjust to the new PLFs, so I’d guess half of all of our pipelines became non-doable loans because of the adjustments. We have to look for a different motivation to do a reverse mortgage perhaps, and certainly at a different client profile. We have to start being more refined,” he said.
Pinnell has also observed changes in his local operating area that extend from the October 2017 rules.
“Before the PLFs were adjusted, I’d guess I had a 75 percent closing ratio. That immediately dropped to 50 percent or less after the new PLFs,” he said. “I’m in a smaller market with a lot of retirees, and a number of them are still making forward payments they’d like to stop paying.”
Still, Pinnell is choosing to maintain a positive attitude, owing to his perception of the reverse mortgage business’ adaptability. “We’ll have to work harder, and be smart about how we do our work and find more efficient ways to close loans, and the income will support us if we have to close 4-8 a month. It just means talking to more people,” he said.
For originators who have all observed an increase in the prevalence of proprietary products, the general outlook for 2019 has the potential to be more outwardly positive for those who service regions with higher property values.
“My outlook is very positive, and that’s really because of the developments in the proprietary/jumbo market since our business is primarily in a high-cost state,” said Scott Harmes, division manager at C2 Reverse in San Diego, Calif.
“Up until about a year ago, there was a hole in the market between $800,000-$1,500,000, but FAR raised the PLFs on [the HomeSafe proprietary product] so now we can serve the entire continuum of value. Additional help comes with the 6.9 percent increase in the 2019 FHA maximum claim amount, so there’s no longer a value hole in the market leaving mid-value range borrowers that can’t be served and that’s a huge development,” he said.
At least one reverse mortgage business observer has actually seen his general outlook on production volume in the new year become more optimistic.
“I think over the last six weeks, my outlook has changed to be more positive because of the rate changes,” said Understanding Reverse author and Live Well Financial vice president of education and organizational development Dan Hultquist. “I was concerned that we’d see another full-point increase over the next year, and now I’m not so sure that’ll happen,” he said.
Because of that, Hultquist is allowing himself to have a more positive outlook for the new year.
“I’m actually more cautiously optimistic about production volume,” he said.
This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.