Reverse mortgage industry reacts to FHA’s hint at future policy changes

Last week’s actuarial report suggests more change is on the horizon

Last week, the Federal Housing Administration released the results of its 2018 Report to Congress, in which it revealed that the HECM portfolio had a negative capital ratio of 18.83% and a negative economic net worth of $13.63 billion in the last fiscal year.

While not exactly stellar, the results were better than last year by about $870 million. The 2017 report revealed a HECM drain to the tune of $14.5 billion and a negative capital ratio of 19.84%.

But even though the HECM program is still operating in the red, FHA Commissioner Brian Montgomery said the agency is optimistic that things will continue to improve over time as policy changes made last year take hold.

He also said the agency eschewed instituting changes to principal limit factors and HECM mortgage insurance premiums, choosing instead to put a second appraisal mandate into effect to help shore funds.

“We fully recognize the burden we’ve placed on the industry and our network of housing counselors,” Montgomery said on a call with reporters.

But while no major changes were announced, Montgomery suggested that additional adjustments may be on the horizon, hinting at rules that would help FHA better track non-borrowing spouses and improve servicing inefficiencies on the back end.

Even though the agency has had to “more or less rewrite the script” every year, Montgomery said, program changes may be unavoidable to keep the program alive.

The reverse mortgage industry has been hit hard by new regulation in the last several years, and profitability for most has taken a hit by as much as 30% as volume plummeted.

As a result, the space has seen HECM lenders embrace a variety of strategies – mergingrebrandingdiversifying and innovating to stay afloat.

While the inevitability of future policy changes isn’t exactly welcome news for an industry that can’t seem to catch its breath, reverse execs offered a measured response to FHA’s report.

Most said they recognized the need for continued change, and many reaffirmed their commitment to working with FHA and representatives from the Department of Housing and Urban Development to get the proper rules in place.

“We are supportive of FHA’s changes to improve the health of the MMI Fund and recognize that there is more work that needs to be done,” said David Peskin, president of Reverse Mortgage Funding. “RMF and other industry leaders are ready and willing to assist HUD and NRMLA in any way possible. We appreciate FHA’s continued support and commitment to the HECM program.”

Kristen Sieffert, president of Finance of America Reverse, said that possibility of future program changes highlights the need for more development of non-agency reverse mortgage products, a charge FAR has been leading with fervor this year.

“In an effort to protect the longevity of the HECM program, FHA has been forced to make changes to the product almost annually,” Sieffert said. “While this long-term process is an effort we fully support, we also made a commitment to product innovation in order to provide more options to people choosing to take action to live a better retirement.”

“Today’s actuarial report suggests that more changes to the HECM program may be coming, but it’s also first time that the industry has a full suite of non-government products available to borrowers, so there’s reason to be optimistic,” Sieffert continued. “As we look to the future, we believe that product innovation and a continuous elevation of the borrower experience will be critical to breaking down barriers that are keeping people from achieving a fulfilling retirement.”

Don Currie, president of HighTechLending, also said non-agency products are a bright spot for the industry.

“The reality is the reverse mortgage program is a necessity for many seniors. Although we’ve seen contractions in HECM guidelines, I’m very encouraged by the new proprietary programs being offered by a major Lenders like RMF and FAR,” Currie said. “These programs have good legs and I’m already seeing positive results.”

For its part, the National Reverse Mortgage Lenders Association pointed out that while the drain was “concerning,” it is still better than last year. The results of the 2017 report had the association questioning the FHA’s math.

“We are still studying FHA’s Annual Report to Congress to understand how the actuaries have modeled the projected valuation of the HECM portfolio. In the past, we’ve raised concerns that actuaries misunderstood the behavior of a HECM loan over time – including how a loan is typically serviced and the home’s value at time of disposition,” NRMLA said in a statement after the 2017 report was released.

This time, the association took a less combative approach, praising FHA for recognizing that 2017 policy changes need time to take root before the HECM’s books of business could show marked signs of improvement.

It also reinforced its commitment to working with the agency to navigate future policy adjustments:

“NRMLA will need to remain focused on addressing the issues that continue to affect the HECM impact on the insurance fund and, as an organization, work with HUD to find solutions that eliminate all concerns going forward and protect the availability of reverse mortgages as an essential option for retirement financing.”



Wednesday, November 14, 2018 | Kerry Donahue

More than half of US households are now headed by someone 50 or over, according to our new report, Housing America’s Older Adults 2018. And the living arrangements, financial resources, health, and functional abilities of those households will present serious challenges in the years to come.

The new report, which supplements our annual State of the Nation’s Housing report, cautions that baby boomers, who will soon begin turning 80, will increasingly need more accessible and supportive housing than currently available. It also warns that many households in their 50s and early 60s may not be financially prepared for retirement. Fewer of these households are homeowners or have built the wealth of their predecessors at the same age.

We need to address gaps in the affordability and accessibility of our housing stock, both of which are essential to older adults’ independence and wellbeing. As the number of households in their 80s grows, it will be essential that we strengthen the links between housing, healthcare, and other services.

The report’s analyses of demographic, financial, and geographic data highlight several other notable trends, including:

  • Many older Americans are burdened by housing costs: Nearly a third of households age 65 or older (9.7 million) pay at least 30 percent of their income for housing, and more than half of these pay over 50 percent. [INTERACTIVE MAP]
  • There is a large wealth gap between older homeowners and renters: Median homeowners aged 50–64 had a net worth of $292,000 in 2016—almost 60 times that of the same-age median renter. The difference in wealth between owners age 65 and over and same-age renters is nearly as large.
  • While median incomes rose in the last five years for older adults, gains were uneven. From 2011-2016, median incomes rose 9.6 percent for those 65-79 and 5.2 percent for those 80 and over, while those 50-64 saw an increase of only 2.6 percent.
  • There is an historically high gap in homeownership rates for older whites and blacks: 81 percent of white households age 50 and over own their homes compared to only 57 percent of older black households. This 24-percentage point gap is the largest disparity since recordkeeping began in 1976.
  • Growing numbers of older adults live in low-density areas: Between 2000 and 2016, the share of older adults living in low-density tracts in 95 of the 100 largest US metros rose from 24 to 32 percent, an increase of almost 6 million adults. Providing services and transportation alternatives is more difficult in locations with more dispersed housing. [INTERACTIVE MAP]
  • There aren’t enough accessible units to serve the growing number of those with physical challenges: In 2016, 17 percent of households age 50 and over included someone who had difficulty climbing stairs or walking (including 43 percent of those age 80 and over). However, according to the most recent estimates available, only 3.5 percent of US homes had three key features for those with mobility challenges: single-floor living, no-step entries, and extra-wide halls and doors.
  • Many of the most vulnerable live alone: The share of households 80 and over that are single-person reaches 57 percent. Among renters of the same age, 77 percent live alone. Single-person households in need of support or care must rely on non-resident or paid caregivers, yet also have lower incomes than larger households.

Given these trends, in the years to come, supportive and accessible housing will be in even greater demand for aging households. Meanwhile, the combination of more lower-income older households and limited federal subsidies suggests that gaps in affordable housing will continue to widen, resulting in more older adults forced to cut back on necessities in order to pay for housing. Responding to these challenges will require a coordinated response from the nation’s public, private, and nonprofit actors.

One of the strengths of the HECM program is that there are not overly restrictive requirements, making these loans easier to qualify for than other financial products such as a mortgage refinance, home equity loan, or home equity line of credit (HELOC).

You are eligible for a reverse mortgage if:

  • You are 62 years of age or older
  • You own your home and use it as your primary residence
  • The house is single family, multi-family (up to 4), or an approved condominium or manufactured home
  • You own your own home free and clear or only have a small amount left to pay on the existing mortgage
  • Your home is in good condition prior to taking out the loan

You must meet with a HUD approved counselor before obtaining a reverse mortgage to determine if the product is suitable for your needs. The counseling sessions will help you understand how the loan works and different alternatives that are available to you.

All prospective borrowers must also undergo a financial assessment to qualify. This assessment makes sure that the borrower can pay for:

  • Property taxes
  • Homeowner’s insurance
  • Basic home maintenance
  • Home Owner’s Association (HOA) fees if applicable