The Reverse Mortgage Blog - by Dennis Haber Esq.

Minnesota Governor Pawlenty does more for reverse mortgages than AARP

The indefatigable work of Beth Paterson brought to center stage how well meaning legislators, wanting to protect seniors, from certain perceived evils indigenous to the reverse mortgage industry, can still get it oh so wrong.

Her passion for helping seniors aided the governor to see the perceived evils in this legislation. At the end of the day, it is the industry’s caring professionals that made the difference. While NRMLA did what the industry would expect, it was the ubiquitous presence of people like Beth that tipped the scales. She in depth critique dissected each part of this bill. It provided the answers that will ultimately transmute a bad bill into a good bill.

I suppose that the one prominent thing that tipped the scales for the legislators was the unwavering support of the venerable AARP. And they too got it wrong.

The bottom line result of this legislation would have been to emasculate the reverse mortgage industry and drive it out of the state of Minnesota. Requiring a 10 day waiting period after closing when federal law already requires a 3 day waiting period is not workable. Increasing the waiting period is like adding more people to solve a problem. The fact that there are more people never works. A longer waiting period will not make seniors smarter or allow them to make a wiser decision.  The suitability requirements and counseling constraints were equally burdensome.

The difference between ordinary and extraordinary is a mere five letters. And the results of efforts culminating in the latter are quite significant. Clearly, Beth went the extra mile. Beth found out, as everyone who goes that extra mile does, that there is very little traffic at that point. When she found out about the proposed law, she initiated immediate action. She studied the bill and did a point by point examination. Paradoxically, she was determined to really protect seniors even though that was the job of the legislature.

Listen, I do not fault the legislature. Understanding reverse mortgages and crafting appropriate legislation is a Herculean task. Accordingly, this bill merely showed the ignorance of the legislature.  The lawmakers were also concerned with many other pieces of different legislation. Will Rogers once said, “All of us are ignorant- Just on different subjects”. 

Now that the governor has vetoed this bill, Minnesota will be able to craft a law that makes sense and really protects its seniors.

The Reverse Mortgage Storm- Hurricane HECM Part2

In part 1 we talked about both the current and impending changes to the HECM benefit amounts. In Part 2, I want to focus on the affect of such changes. I for one believe that by the end of the year all parties will know whether the reverse mortgage industry will survive as we know it.  The current limit of $625,500 is due to expire at the end of 2009, unless legislation is introduced to maintain same.  If the limits return to 417,000, for example, the industry will then be faced with a quintuple whammy that will be difficult to overcome. 

 If HUD resorts to a smaller principal limit factor, the program will become sick. (Whammy #1) If HUD also incorporates a higher MIP, the program will become very sick. (Whammy #2) If the margins continue to rise, the program will become critical. (Whammy#3) Implacable bond yield and index  increases will make the program gravely ill.(Whammy #4) Should the current lending  limit revert back to $417,000 next year, the program could die a slow death.(Whammy#5)  Each of these changes will reduce the amount that could be realized under the HECM program.  As the need for money becomes greater, the realized amounts will become smaller, much smaller.

But a lot can happen between now and the end of the year. One must take a wait and see attitude. Maybe home values will start to level off; maybe the $800 million HUD is requesting (if realized) will negate the need for an MIP increase or will make the increase smaller. Maybe the bond yields will stop rising. Maybe new investors will enter into the market; maybe the lower PL factor won’t be as steep as believed. Maybe the lending limit will stay as is. Yes, there are a lot of variables and a lot could happen.

Those that have already closed on their reverse mortgage are the lucky ones. Those that closed while the higher limits were enforced are fortunate. Those that will close before HUD tinkers with the program will also be lucky. Closing while Fannie continues its intractable margin increases, as it searches for phantom investors, should also consider themselves lucky. Your rates could have been even higher. If congress refuses to keep the higher limits in the new year (2010), get your reverse mortgage as fast as you can. I believe that it is in one's interest to make this assumption.

As I see it, no one is taking a holistic approach to the problem. It is as if Fannie & HUD are specialists. Together, each may think that they cured a specific problem; however, their efforts could kill the patient.

 Imagine two neighbors talking about their respective HECMS. One obtained a reverse mortgage after the new higher limits went into effect.  The other obtains a reverse mortgage after some of these aforementioned changes have occurred.  The results would be very different.  Getting back to our weather argot in part 1, it’s as if our first HECM borrower escaped from the financial storms of life. The second borrower was not as fortunate. The industry must urge their prospects to act now. If they continue to procrastinate, they do so at their own peril. There will be no reprieve from the next financial storm.

Reverse Mortgage Storms-Hurricane HECM Part 1

Potential reverse mortgage storms are whipping up all over the country.   To keep this in  meteorological  argot, I would suggest that there are reverse mortgage storm watches  one must keep their eye on. We don’t know which path the incipient fronts will take, or whether the storms will ever materialize. Yet the possibility remains that a lot of damage can be done.

Many months ago, I was unsettled by the first irreconcilable rate increase. The dye was cast when the margins were first increased. Today, the industry is faced with a unilateral shift in focus.  Like it or not, the reverse mortgage program is not as concerned with helping seniors as it once was. At some point, the industry shift in focus is now subsumed with secondary market concerns.

It may very well be argued that this shift is necessary to keep the program alive. However, another argument can be made that this shift could imperil the program when it is needed the most. The increase in the margins could not be happening at a worse time. Fannie, trying to entice other investors to take notice, has been increasing the margins on the HECM program. It seems to me that while housing values continue to decline, investors will not have the confidence to invest in reverse mortgage paper.  Accordingly, increasing these margins now would seem to serve little purpose.

Having said that, the Housing & Economic Recovery Act mandates that Fannie Mae’s portfolio decrease. Hoping that investors will see the merits of investing in the program is a miscalculation at best. It reminds me of the times the weatherperson states that it will be a beautiful day. As one looks out the window it is pouring rain.

Another important and symbiotic issue is the rising indices. A along with the rising margins, higher indices will mean that it is more likely than not, that little or no equity will be left in the home.  This is a significant hundred and eighty degree difference. Therefore, originators, while they can’t foretell the future, must nevertheless be reasonable in their forecasting on this point.

There is also the looming probability that the benefit amounts will be decreased as HUD wrestles with the incessant & ubiquitous declining value issue. Is there something government can do to eliminate the need to decrease the benefits realized under this program? It seems that government has a predisposition to helping businesses rather than helping individuals. So it would appear that this answer is no.

Taken together, the rising indices with higher margins, and higher MIP amounts and lower benefit limits may ignite a Katrina style disaster. Many in this industry are voicing this type of concern.  There is a palpable fear that these moves could wipe out an entire industry. I think this is a bit dramatic. Yes ,there will be challenges.

Sadly, “good people” are now considering leaving the industry. They profess to see the handwriting on the wall.  I think this kind of thinking is premature. The tug of war between providing for the needs of our elders and facilitating the program in the secondary market has begun. Currently, it looks like the secondary market folks are winning. If the words in the National Housing Act mean anything, the program will continue to provide the solace that our elders need. If the words are ignored, then Washington and the industry will have failed our elders.

Let’s not forget that 12 U.S.C. §1715z-20(a) states that the purpose of the reverse mortgage program is to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; 

At a time when seniors need the money the most; when media reporting has never been more favorable; HUD is considering (as it appears that it  must) increasing the MIP (Mortgage Insurance Premium) in conjunction with lowering the principal limit factor.  This means that the benefits that one can receive could be substantially less than they are today. 

While many are resigned to this eventuality, I believe that  the reduction in benefits could be modest with additional and appropriate government support. While HUD is already requesting about $800 million to cover current short falls under the HECM program, the cuts in benefits if draconian, could  violate the spirit of the National Housing Act. Therefore, modest cuts would seem appropriate. It is critical that seniors continue to have confidence in the program, while viewing it as fair.

Declining home values is a serious problem.   The resulting reduction in HECM benefits will not, in my opinion spell the demise of the industry. Rather, it will cause confusion and concern that will lower the volume of closed loans. The HECM for purchase and the eventual implementation of HECM co-op loans, may not be enough to sustain the program at current levels. However, even with (substantially) lower benefit amounts, the need to monetize equity during troubled economic times will remain.

Our politicians must dispense with high sounding political speeches and come to the aid of the HECM program in a meaningful way. One way is to cover the expected losses due to the steep decline of home prices. Another way is to continue to temporarily subsidize the program so that reasonable benefit amounts can be realized.

 We must heed the words contained in the National Housing Act. But for this program, thousands more would be counting on the government for direct assistance. Too many of our elders have been hit by the financial storms of life. The HECM program can provide protection from these storms.

 

The Reverse Mortgage: Ugly Duckling or Beautiful Princess-It Just Depends Upon Your View

Since the higher loan limits have come into play, more and more reverse mortgage articles are focusing upon the reverse mortgage as a prophylactic tool to combat foreclosure. Industry veterans saw the real efficacy of the product years ago, when the proprietary programs were yielding maximum benefits.

Now the HECM program is burnishing its reputation as more and more forward mortgage lenders deal with senior borrowers who are in foreclosure. These lenders are beginning to finally understand that a way can be crafted to keep our elders in their home. Some lenders, wanting to get some of these non performing loans off their books, are considering accepting less than the full balance due. Reverse mortgages are literally becoming a lifesaver.

When individuals find themselves in the throes of the foreclosure process, it is hard to think; let alone think outside the box. Out of the box thinking, however, is the kind of adjustment that is needed in these uncertain times. The stigma of a foreclosure has evaporated as millions of Americans of all ages and eclectic groups find themselves in the same proverbial financial abyss.

The recognition of the often maligned reverse mortgage program, while over twenty years in the making, has hit a high note as the public discovers its effectiveness in one area. Those of us in the industry see its beauty each and every day. It provides our elders with a life that they have been yearning for; money issues disappear; bills can be paid; the sun is shining once again.

Every pejorative has been aimed at the reverse mortgage program. The beautiful features have been hidden by this overwhelming bias. Recently the world, through You Tube, saw what magnificence can lie behind a rather frumpy exterior. The reverse mortgage is the Susan Boyle of the mortgage industry. They both have special qualities and they both can make beautiful music. One only has to  take proper notice.