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Ain’t No Rest for Reverse Mortgages: Industry Gasps for Breathing Room

When the Financial Assessment took effect April 2015, the consensus was that much of the criticism and negative press that have historically plagued reverse mortgages would be laid to rest. And while press coverage since then—for the most part—has viewed reverse mortgages through an arguably more positive lens than it did in the past, the image makeover hasn’t translated into an uptick in loan originations.

At last year’s annual National Reverse Mortgage Lenders Association (NRMLA) conference in San Francisco—held seven months after the implementation of the Financial Assessment—there was a prevailing optimism that the reverse mortgage industry had found some runway for growth, given that the most profound program changes had already been in place for the better part of the year.

HUD acknowledged the positive impact of the HECM book of business, which reported an economic value of $6.8 billion in fiscal year 2015 and contributed to the Mutual Mortgage Insurance Fund exceeding its Congressionally required 2% capital reserve ratio for the first time since 2008. The financial performance of the HECM portfolio was the result of a nearly $8 billion upswing from the previous fiscal year.

“We reached this goal sooner than expected and large gains in the HECM fund are part of that,” said Kathleen Zadareky, then-deputy assistant secretary for single family housing at HUD during the NRMLA conference.

But while the industry was happy to accept the praise and finally have some breathing room from regulation, HUD wasn’t done tightening the screws on the HECM program.

Since the effective date of the Financial Assessment, the industry has seen a slew of updates to existing HECM servicing and loan assignment policies, as well as several new proposed rules for reverse mortgages—most notably, the May 2016 proposal that seeks to cap lifetime interest rate increases on adjustable-rate HECMs.

HUD is currently in the review period of its rulemaking process and there is no timetable for when the agency might enact any of its proposals at the moment, especially since HUD is now seeking public comments on possibly making loan assignments to the agency mandatory when HECMs reach 98% of their maximum claim amount.

As with many HECM program changes handed down from HUD, the impact is typically a slow burn marked by months of constrained origination volume as industry lenders adapt to the new way of doing business—not to mention the increased training expense to ensure compliance with the new policies.

So with even more regulations pending approval during a time when the industry is experiencing one of the lowest volume years in recent history, it looks as though the time to sit back and catch a breath— if it was ever here—has passed.

Written by Jason Oliva