New Rules Improve the HECM for Purchase, But Challenges Remain
New Rules Improve the HECM for Purchase, But Challenges Remain. Recent changes to the reverse mortgage program that reduced lending limits and amended ongoing insurance premiums have many originators expecting a slump in business. But some say the Home Equity Conversion Mortgage for Purchase is greatly improved under the new guidelines, and they plan to double down on their efforts to promote the product in 2018.
In addition, new guidance released in October lifted the much-contested requirement that a certificate of occupancy be issued before the application process can begin.
Rob Cooper, national director of Reverse Mortgage Funding’s H4P program, says the changes have made the product much more appealing.
“Looking at all the changes, I think the HECM for Purchase buyer came out looking pretty good. Interest rates have come down; they’ve become a lot more competitive, which is great for the customer,” Cooper says.
“They’re retaining a lot more equity; the annual MIP has gone down; plus, the total cost of the loan has gone down dramatically for a HECM for Purchase customer. If you add all of that together, you can see that the value proposition is much greater for a potential homebuyer.”
Chris Bruser with Retirement Funding Solutions agrees. “I think all the changes they made are positive for HECM for Purchase,” he says. “They make it more in line with traditional FHA financing, which is a great thing.”
Cooper says that removing the CO requirement has enhanced the product’s appeal to builders, and he’s already noticed an uptick in interest.
“Once the CO requirement went away, a lot of the larger builder opportunities have been coming to fruition. For many of the people I’ve been talking to, that was a really big hurdle. Now, I’ve been seeing a lot more interest,” Cooper says. “I’ve gotten two to three times more calls than I was getting before. People are now understanding the value proposition with the purchase product, and they want to incorporate it into their businesses and learn more about it. That wasn’t happening before.”
But while many agree that the H4P is improved by recent changes, there are lingering issues that some would like to see the Department of Housing and Urban Development address.
Some say it’s unclear whether HUD will allow an appraisal to be ordered until a certificate of occupancy is issued. H4P proponents argue that an appraisal should be allowed based on the plans and specifications; a final inspection would then complete the process.
“We’re hoping that gets clarified,” Bruser says.
Others are not so sure about the explosive potential of H4P under current market conditions. Michael Banner, a longtime H4P proponent and owner of Florida brokerage firm Professional Mortgage Alliance, says that while the changes are great, the product isn’t going to advance until the industry can get Realtors on board.
“Do I think that the new CO rule is great? Absolutely. Do I think that that’s going to help builders come to the table? Absolutely. But the breakout for the HECM for Purchase, the gold mine, is in the Realtor world — not the builder world,” Banner says.
Banner says a massive, industry-wide push to educate Realtors is the only way the product can realize its full potential.
Bruser agrees. “The Realtor community is vital, there’s no getting around that,” he says. “It’s going to take all of us being good stewards of the industry — not being too salesy, but making sure they understand this is not just another financing tool. This can literally change a person’s retirement.”
Written by Jessica Guerin