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WASHINGTON — The Department of Housing and Urban Development is revising its fees on federally insured reverse mortgages to reduce losses to its Home Equity Conversion Mortgage program.
The agency will charge higher upfront premiums for most borrowers while lowering the annual premium. Under the new system, the upfront premium will be 2% for all loans, replacing the variable rate between 0.5% to 2.5%, with the annual premium lowered to 0.5% from 1.25%.
This new fee structure will go into effect Oct 2.
“Given the losses we’re seeing in the HECM program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” HUD Secretary Ben Carson said in a press release Tuesday.
The agency is also lowering the loan limits for older borrowers taking a new HECM loan, a move that will reduce originations to 20%, the agency estimated.
Industry representatives praised the move. David Stevens, president and chief executive of the Mortgage Bankers Association, said he “applauds” the announcement and looks forward “to continuing to work with policymakers” on fixes to the program.
The Home Equity Conversion Mortgage program is projected to report a loss for fiscal year 2017, which ends Sept. 30. However, HUD officials are hoping revenues from the Federal Housing Administration’s single-family program will cover those losses. If they don’t, the FHA will have to borrow from the U.S. Treasury.
HUD officials said they expect the changes will “rightsize” the program so the new business will cover losses.By Brian Collins
After a predicted September surge, reverse mortgage endorsement figures could take a significant hit once new principal limits and mortgage insurance premiums take effect October 2.
The short-term effect could be the same as when HUD instituted Financial Assessment rules or made principal limit factor (PLF) changes in the past, according to Reverse Market Insight president and founder John Lunde — meaning a drop of 25%.
But an impending dip in endorsement data will only be one of the problems facing the industry in the coming months, as lenders face a serious drop in revenues.
“I believe this round of changes is bigger than any of the other prior rounds of changes, primarily because of the reduction in the expected rate floor in calculating PLFs,” Lunde told RMD in an e-mail, adding that the per-loan drop in revenue could be 50% or more.
“Put those two factors together, and the revenue change picture is going to force a lot of cost reductions for lenders,” Lunde said.
Now that the expected “floor” is gone, many lenders will have to compete on rates, making the HUD Home Equity Conversion Mortgage landscape look a lot more like the traditional “forward” lending market, Nationwide Equities president Glenn Wallace told RMD.
“It’s going to get much more competitive out there,” Wallace said.
In the wake of the announcements, the Mahwah, N.J.-based Nationwide plans to take a close look at its expense structure, redouble its efforts to promote the HECM for Purchase products, and provide loan producers with more marketing materials to boost their competitive advantage in the more cutthroat market ahead, Wallace said.
Paul Lamparillo, Nationwide’s CEO, said the company will also explore expanding its forward lending space and expanding its small call center, launched within the last three months, as it pursues new business instead of HECM-to-HECM refinances.
“What you have to do is look at your expenditures,” Lamparillo said. “You have to be a little smarter, a little more crafty in your marketing approach.”
While he admitted that the “ruthless” strategy — taking out a reverse mortgage line of credit and only cashing out when the available funds were worth more than the home itself — may be less appealing now, Lamparillo said the HECM credit line can still be useful in riding out down markets or unexpected expenses. In fact, the day before speaking with RMD, Lamparillo applied for counseling so he could take out a reverse mortgage line himself.
“The math speaks the truth — the cost of the MIP versus having that availability in the event that it’s needed — so I think that will still be attractive on a personal basis,” Lamparillo said.
Both Lamparillo and Wallace emphasized that they understood HUD desire to shore up the Mutual Mortgage Insurance Fund, and Lunde said the changed HECM will end up being an overall better product for consumers — which could end up leading to higher volume over the next few years.
Private jumbo products could also become more competitive now that the HECM is more restrictive, Lunde said.
And in the end, it’s important to remember that it may be too soon to tell exactly how the changes will shake out over the coming years.
“It’s like throwing darts,” Lamparillo said. “Everybody’s speculating. But the fact is, you have to sit down and reevaluate your business models. by Alex Spanko