Upcoming changes to federally-guaranteed home equity conversion mortgage program will change not just the product itself, but the type of borrower using it, said panelists during a Wednesday webinar on the topic, and there are opportunities amid the overhaul.
“The reality is, we need to change how we do this business,” said John Lunde, founder and president of Reverse Market Insight, during the webinar, hosted by ReverseFocus. “There are several big opportunities out there that our industry has not really attacked, and effectively gotten a lot of volume out of. The HECM for Purchase is probably one of the biggest ones… Financial planners [present] an enormous opportunity, even bigger than Purchase.”
Pursuing those opportunities will be imperative, he said, considering how the new HECM rules could affect future loan volume.
RMI took a look at funding activity from July and August to see how those loans would have been impacted had the new rules already been in place.
For the July/August book of funding, the total impact from the upcoming October changes—lower principal limit factors and restrictions on initial utilization—but ignoring the January financial assessment implementation would have seen a 49% unpaid principal balance reduction.
“That’s a shocking number,” said Lunde. “It’s bigger than any other changes we’ve seen. This underlines that we need to go out and change everything, from marketing to how we approach business. It’s going to be a different business going forward. That’s the bottom line.”
However, the changes are essential for the program to continue, said Michael Kent, president of mortgage lending at Reverse Mortgage Solutions, not only from the MMI Fund standpoint, but also to help prevent the seniors taking out a reverse mortgage from running into issues.
“We can look at the changes as the class being half full, or the glass being half empty. I’m an eternal optimist,” Kent said. “I see a lot of opportunities that exist in working with financial planners… Hopefully this will move us away from ‘I need the money now’ and move [reverse mortgages] into a piece of the person’s retirement planning.”
The HECM of 2014 is going back to its roots, said Jeffrey Taylor, president of Wendover Consulting, Inc. The original intent of the HECM program, he says, was envisioned as a line of credit for emergencies, or seniors who wanted to supplement their monthly income with periodic or tenure payments.
“In my view, [reverse mortgages] are going back to the original intention of the line of credit. Pure and simple, this is a competing product to go against home equity lines of credit,” he said. “That’s the borrower we want; that’s the market to go after.”
Compared side by side, with compounding growth on the unused portion of LOCs and the fact that origination costs can be financed into the loan, along with no monthly requirements for repayments, Taylor believes that the HECM will beat bank-funded HELOCs “every time, hands down.”
Ultimately, HUD’s rationale for overhauling the HECM program comes down to two considerations: risk management, and program preservation, said Dan Mooney, Lender Compliance Monitor specializing in HECM compliance for the Quality Assurance Division out of the agency’s Santa Ana, Calif. Homeownership Center.
“The whole reason this program was conceived in the mid-80s revolved around the phrase ‘age in place,'” Mooney said during the webinar. “That was the driving force behind these changes, especially in regard to initial disbursement limits: the preservation of accessible equity within the loan model itself, for borrowers down the road to be able to actually age in place.”
Written by Alyssa Gerace