HUD: Reverse Mortgage Program Ups and Downs in 2019

The Home Equity Conversion Mortgage (HECM) program has seen incremental change in use cases over the 2019 fiscal year, as well as more visible shifts including year-over-year loan volume, an increase in the average age of a client at the time of endorsement, a reversing trend in refinance activity, and an increase in the dollar value of the number of claims paid.

This is according to data presented by officials from the U.S. Department of Housing and Urban Development (HUD) in a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville on Tuesday.

In addition to providing updated data on the use of HECM products in fiscal 2019, HUD officials also provided an update on the agency’s forthcoming guidance concerning the retirement of the London Interbank Offered Rate (Libor) as the index for HECM reverse mortgages, while also discussing efforts within HUD that will seek to understand industry pain points associated with changes instituted to the program by the department.

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HECM loan data

Total loan volume in FY 2019 stands at 31,274 loans, marking a 35.3% drop in total volume compared with figures from FY 2018. The average age of a single HECM borrower has increased slightly over the course of fiscal 2019 to 72, according to Dr. Joshua Miller, senior advisor to the deputy assistant secretary in the Office of Single Family Housing at HUD. The composition of HECM borrowers has remained consistent however, with the majority of loans (39.7%) being for couples.

When examining HECM loans by purpose, unsurprisingly the traditional HECM remains far and away the most dominant loan, making up over 90% of the total originated loans. However, when comparing HECM refinances to HECM for Purchase (H4P) transactions, refinance activity has seen a slight uptick but on a downward trend, while H4P activity is increasing. Refinances still lead H4P transactions in terms of raw volume, however.

“Refinance activity has decreased over the last two fiscal years, scaled to the loan’s maximum claim amount,” Miller said. “In FY 2019, [we saw] 7.4% for refi activity, which is pretty close to the HECM for Purchase activity. However, HECM for Purchase shows a different trend, and has increased over this period significantly.”

In FY 2009, H4P loans made up 0.84% of total HECM endorsement activity. Contrasting that with FY 2019, H4P made up 7.4%, showing steady growth in H4P transactions when directly compared to refinances. Still, FY 2019 did see a slight uptick in overall refinance activity in terms of raw volume, which HUD will be watching more closely since the cause for the uptick was not immediately clear to the department, Miller said.

Libor replacement, regulatory issues

In terms of the Libor index replacement, there were 267,487 active HECM adjustable rate mortgages (ARMs) and Libor-indexed mortgages as of September 30, 2019. From October 1, 2018 through September 30, 2019, 29,367 loans (93.9%) of new endorsements were adjustable rate, Libor-indexed reverse mortgages. This could create an issue when the Libor rate is set to expire in 2021, which is an issue that HUD is monitoring, Miller said.

“We’re going to try and make as smooth a transition as we can [away from Libor],” he said.

When there is more guidance to share, HUD will be in touch with the reverse mortgage industry once more details have been determined, according to Erica Jessup, acting home valuation policy director for the Office of Single Family Program Development.

“Libor is a priority, and we’ll be engaged with NRMLA and the industry once a decision has been made to provide that [guidance] information to you,” she said.

To answer issues of regulations and the index rate changes, HUD will establish a working group that is designed to understand pain points involved with such changes at the direction of the FHA Commissioner. This includes external engagement with organizations like HUD’s Alternative Reference Rates Committee, the Consumer Financial Protection Bureau and NRMLA, Miller said.

Internal Engagement will span the Government National Mortgage Association (GNMA, or “Ginnie Mae”), the Office of Housing Counseling, the Office of Risk Management and Regulatory Affairs, and the Office of Policy Development and Research.

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