As regulations reshape the reverse mortgage, lenders hope to end up with a safer, more reputable product. Meantime, the changes are turning the economics of this business on its head.
Under new rules, seniors can no longer receive the entire proceeds from a
Soon, the FHA will also require reverse mortgage lenders to conduct financial assessments to ensure borrowers have the necessary residual income to pay taxes and insurance and maintain the property.
These changes alone are having a profound effect on how the reverse mortgage is pitched to seniors.
"With the new protections, financial planners are starting to view HECMs as a retirement tool," says
Previously, many seniors who were facing foreclosure used FHA-insured HECM loans as their last chance to pay off their mortgage and stay in the home. While reverse mortgages don’t require monthly loan payments, borrowers are obligated to pay hazard insurance and property taxes. Many borrowers defaulted when they couldn't afford to pay taxes and insurance, prompting FHA to change its rules.
Rather than a lifeline for the desperate, the product is now more suitable as a kind of insurance for the comfortable.
"Critics claim the new borrower doesn't need a reverse mortgage. In a way they are correct," says Taylor, the president of
Another regulatory wrinkle has mightily influenced the way reverse mortgages are structured.
Seniors can still get a fixed-rate HECM and take out up to 60% of loan proceeds in a lump sum. But they have to wait 12 months or refinance (which is expensive) to tap the remaining loan proceeds.
The net result of the FHA and Ginnie reforms is that the adjustable-rate line of credit now dominates the reverse mortgage scene instead of fixed-rate products. About 75% to 80% of HECMs being originated today are adjustable-rate, according to
The shift in the market means lenders have to be more patient, too. A fixed-rate, lump-sum HECM can be securitized immediately and the issuer can take all the profits upfront. On an adjustable-rate line of credit HECM, the lender has to wait until the borrower begins to draw down the line of credit before the draws can be securitized.
"The shift in business to a variable rate product, with lower upfront funding and larger future draws, creates current-period losses, but will generate future period gains," Ocwen Chief executive
The company expects slow growth in reverse mortgage originations this year, Faris said.
A week later, rival servicer
"We believe the new product profitability is superior to the historical product, but the curve is back-end weighted due the lower initial originated balances," said Walter's chief investment officer,
The most popular reverse mortgage now is an adjustable-rate HECM with a 10% lifetime cap. This means that with a starting interest rate of 3%, the rate cannot go higher than 13% during the life of the reverse mortgage.
Demarkey's firm, which has offices in
The new lender started originating HECMs in the fourth quarter of 2013 through its correspondent channel and began funding brokered loans in January. A few weeks ago, it began recruiting and hiring loan officers for its retail sales channel a few weeks ago. Reverse Mortgage Funding is licensed in 47 states, the
Demarkey and Reverse Mortgage Funding Chief Executive
The FHA reported last week that HECM originations totaled
Ginnie Clamps Down on FHA Reverse Mortgage Feature
HECM Lenders Waiting for Financial Assessment Rules
Walter Investment Goes Forward With Plan for Reverse Mortgages
|Copyright:||(c) 2014 National Mortgage News. All rights Reserved.|
|Source:||Source Media, Inc.|