Written by Philip E. Lipp, as originally published in The Reverse Review.

I remember the first time I heard the phrase, “Less is more.” It made me stop and think. I don’t recall where I heard it—if it was a low-tar cigarette commercial, a diet product advertisement or some art critic’s commentary—but I do remember trying to understand what it meant.

Now, with the recent reduction in reverse mortgage loan products and loan amounts, we seem to have a new application for this slogan. In the new reverse mortgage lending environment, is less really more? We’re certainly left with less to work with, and proponents claim we’ll be better off in the long run. So by limiting the scope of the HECM product, did FHA open the door to more opportunity? Maybe.

For one thing, I believe that from a consumer’s point of view, it did just get a whole lot easier to understand reverse mortgages. There are just two programs now: the fixed- and the adjustable-rate. Borrowers just have to decide if they need more money at closing to cover debt and other expenses, or if they prefer to take less money upfront and save on closing costs. And for loan officers, it’s now easier to figure out rather quickly what’s best for your borrower: Saving more versus borrowing more to pay for existing or looming needs.

I understand that HUD’s intention was to ensure that the program would be solvent and available for years to come. This is especially important because of the tens of millions of baby boomers who are expected to approach the retirement starting line in the next 15 to 18 years.

I admit, the changes were not easy to digest at first, but if you assume a long-term point of view, the benefits are a bit clearer. I believe that as a result of these amendments to the program, the FHA’s HECM will likely be utilized less as proprietary programs rush in to fill the void. Want to get a reverse at age 55? It’s been done before. Have a condo that is not FHA-approved? You might still be able to get a loan if a proprietary market were to take shape. How many times have you explained to a borrower that they can’t take advantage of the equity in their homes because it is worth two or three times the current FHA maximum claim amount? Proprietary products would change this tune.

The question is not if but when will these programs burst forth onto the scene? Generation Mortgage Company was the early bird when it came out with a proprietary program not long ago, and I believe there will be more. No doubt, as more programs enter the market, the resulting competition will make this type of loan product better.

We have lived through what some considered the golden age of FHA’s HECM product, and now the industry will have to redouble its efforts to achieve solid results in this new environment. But we know the demographics are on our side. Baby boomers do not have a problem with borrowing on their homes; they just need a product that works for more of them. Product differentiation will help fill in the huge gaps that have been created by the one-size-fits-all HECM.

Perhaps we became complacent as an industry, originating and closing enough loans to make a living but never managing to advance the product enough to get beyond the market’s abysmally low penetration rate. Maybe these changes were the motivation we needed, and down the road we’ll thank the Feds for pushing us out of our comfort zone. Perhaps

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these revisions will help catapult the HECM product into the mainstream.

I believe that 2014 will be a pivotal year for this industry. We’ll be working hard to get a handle on the new rules and underwriting guidelines, and perhaps at the same time we’ll see the emersion of a burgeoning proprietary market. Am I viewing the future through rose-colored glasses or partaking in a little wishful thinking? I don’t think so. Capitalism works best when allowed to expand in a marketplace unhindered by government competition and restrictions. (At least one out of two isn’t bad.) I think investors will see opportunity in a scaled-back FHA program and will

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take steps to fill the void. Personally, I am looking forward to the day when I can offer a full line of programs, just like the forward side of the industry. Perhaps with the return of a proprietary market, that will be a possibility one day.