New Reverse Mortgage Sales Opportunities, Reduced Second Appraisals During Pandemic

While the effects of the COVID-19 coronavirus pandemic have continued to have a pronounced effect on the economic stability of the United States, it has also managed to create some decidedly unique opportunities for selling reverse mortgages and providing additional benefits to seniors — and some financial organizations — that have suffered an economic shock.

There has also been an effect on instances of second appraisals sometimes required by the U.S. Department of Housing and Urban Development (HUD) ahead of the progression of a reverse mortgage loan.

This is according to a webinar hosted by members of the National Reverse Mortgage Lenders Association (NRMLA) HUD Issues Committee, which took place on Thursday afternoon. Keeping the economic instability being faced by seniors in mind during this moment is important, which is why renewed opportunity for reverse mortgages can help to provide necessary financial relief for affected older citizens.

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Sales opportunities during COVID-19: community banks

With seniors inordinately impacted by the spread of the virus and because the economic toll may exacerbate an already chronic problem of making ends meet in retirement, the additional stability that a reverse mortgage can provide for seniors should not be overlooked as an opportunity to expand the reach of the product. This is according to Ken Krajewski, head of reverse mortgage lending at Southfield, Mich.-based 1st Nations Reverse Mortgage.

While realtors and financial planners may have additional reasons to now consider a reverse mortgage, another potentially untapped resource for new reverse business is smaller community banks, Krajewski explains.

“I think community banks are feeling this quite a bit, [seeing] people that are defaulting on their loans now asking for forbearance,” he says. “This is a problem that community banks need to shore up; they need to get these loans off of their books if they can. A reverse mortgage can be a solution for them, by educating them as to how the reverse mortgage can get a default off of their books. It can be a huge relief to smaller banks and community banks.”

Seniors living with forbearance

Another interesting dimension to the current situation for seniors rests in the idea that if they have requested a forbearance, then some seniors may be having a “practice run” concerning what it’s like to live with a key feature of a reverse mortgage, Krajewski says.

“[Older borrowers with forbearances] are living in their home without making a mortgage payment, and that realization — even right now during temporary forbearance — is a relief for them,” Krajewski says. “And, that stress of knowing that at some point in the future, whether it’s in one month or whether it’s in three-to-six months that payments are going to start to kick in again can be very stressful.”

Having an idea of what it’s like to live in the home without having to make a monthly mortgage payment could offer a senior a very unique, one-of-a-kind insight into what life with a reverse mortgage can be like, Krajewski says.

“And that may be a great opportunity for us to talk to our community banks, and find out how they can provide this solution to those older customers who are struggling to make payments or are in a forbearance situation,” he says. “When those payments kick back in, that may be a struggle for them to get back into the mode of making mortgage payments again.”

Appraisal changes

In terms of how the appraisal process has changed for reverse mortgage transactions, there has been significant movement first with the relief granted to the reverse mortgage industry by allowing exterior-only and desktop-only appraisals for some reverse mortgage instances, followed by the extension of that policy through June 30. There have been some positive results that have stemmed from these changes according to Kendra Rasmussen, VP of credit at American Advisors Group (AAG).

One positive result is that turn times for loans have been reduced, Rasmussen explains, resulting from less required instances of repairs from appraisers. The second positive outcome is a slight reduction in the instance of required second appraisals for loans submitted by AAG.

“We’ve experienced a 10% drop in the number of second appraisals that we’re seeing required by HUD when we submit the first appraisal to them,” Rasmussen explains. “So that was an unexpected win that we have been able to experience.”

Previously, national appraisal management company Mortgage Information Services, Inc. (MIS) related to RMD that the relaxed appraisal requirements had not caused any discernible increase in the amount of second appraisals required shortly after the onset of the pandemic and resulting national emergency declared by the president.

Potential post-relief appraisal risks

One concern that the industry should keep in mind is when the current appraisal relief inevitably ends. Previous first appraisals under the provisions of the relief then requiring a second appraisal after the relief lapses could present some problems, Rasmussen says.

“We’re going to have exterior appraisals that may then need a second appraisal, which will be a full appraisal,” she says. “And then you’re going to have a lot of things called out on that full appraisal that you and your borrower may not have anticipated. So, I would just [advise] a little bit of caution moving into that environment.”

Having the necessary conversations with borrowers and salespeople to understand that there may be challenges once the appraisal relief ends can be an important thing to do if the loan’s timeline presents the possibility of a first relaxed appraisal, and a second full appraisal, she says.

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  • For at least two decades we have hear about the theory of community banks being a golden opportunity. It is the like the promise that HECMs would increase once the Baby Boom generation began turning 62. That event started on 1/1/2008.

    • (Continued from the first comment above)

      Fiscal 2008 was the second best all time total for HECM endorsements but it was just 4,600 more endorsements than for the fiscal that just preceded it (fiscal 2007). The increase in total HECM endorsements in fiscal 2008 was just 4.3% over total HECM endorsements for fiscal 2007, while the increase for fiscal 2007 was 31,207 or 40.9%. The increase for fiscal 2009 was just 2,500 HECM endorsements for a 2.3% rise.

      What that means in plain English is the industry experienced two consecutive years of slight but declining growth. From 2007 to 2009 we saw two straight years of slightly downward sloping stagnation (fiscal years 2008 and 2009). Then came three straight years of losses in total HECM endorsements, followed by six years of slightly downward sloping hill to valley secular stagnation. Then came another year of loss in total HECM endorsements during fiscal 2019 (total endorsements of just 31,274) which ended up with total endorsements less than 28% of the HECM endorsement volume experienced in fiscal 2008 (of 112,154 HECM endorsements). So have the Baby Boomers done anything substantial to increase HECM volume over the last 12 years? What about community banks over the last 20 years?

      The biggest source of growth in HECM endorsements in the last seven months of fiscal 2020 over the same time period in fiscal 2019 is not Traditional HECMs (they actually had a loss), or H4Ps with their meager 3.2% increase but HECM refis with a 268.6% increase. The increase in total HECM endorsements in those same time periods was 10.2%. So of the 1,881 increase in total HECM endorsements in those same time periods, 2,391 were HECM Refis, just 41 were H4Ps and unfortunately Traditional HECMs fell by 551.

      There were impressive gains in case number assignments (CNAs) for March 2020 of 1,211 CNAs over March 2019 and 1,154 CNAs during April 2020 over April 2019 but over 92% of those increases came from HECM Refi applications.

      In a few weeks we should have the FHA Single Family Production Report for May 2020 that will provide a breakdown not only on HECM endorsements but CNAs as well. It should be pointed out that after that report is posted, very good estimates for the HECMs endorsed during fiscal year 2020 can be calculated. Also any applications with CNAs dated after May 31, 2012 which will be closed and endorsed will most likely be endorsed in fiscal 2021 rather than fiscal 2020.

      Despite COVID-19 and all of the increased interaction with seniors, we are seeing very little growth from seniors who have never had a HECM. Most originators will tell you that when interest rates drop and there is a noticeable increase in principal limit factors, a substantial part of any increased activity is coming from existing HECM borrowers.

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