3 minute read
Those of you reading this column have experienced firsthand the tumultuous changes and challenges that come with originating HECM loans post 2009. The housing and economic crash, repeated loan ratio reductions and product eliminations have left many wondering if this is a viable career. While one’s choice of career is a purely personal decision, the federally insured reverse mortgage does remain a vital and viable product offering for the next generation of retiring homeowners. How did we get here and what can we look forward to in the future?
Letting Go of Yesteryear
“We worry about what a child will become tomorrow, yet we forget that they are someone today.”
This quote aptly describes the internal struggle many reverse mortgage professionals face. We can find ourselves fretting over the future of our industry while overlooking the product’s present value. The pure economics of 10,000 mostly unprepared baby boomers retiring each day weighs heavily in favor of our industry’s future.
Much of our collective worry can be attributed to our past experience with a simpler, more generous product with few restrictions and generous payouts. The earlier HECM product design did make sense in a market with rising home values and falling interest rates. Borrowers maximized their utilization of home equity while lenders and FHA enjoyed the security of an appreciating asset, which backed the loan. In fact, many refinanced their reverse mortgage as interest rates fell and the national lending limit offered higher lending limits for many in lower-valued counties. Full withdrawals with fixed-rate HECMs were the loan du jour, with little concern given to future access to funds.
The Day of Reckoning
Lawmakers, while inclined to spend money, are resistant to accounting for programs that are a source of red ink, especially with a cash-strapped federal government. The arrival of the CFPB and its report to Congress on the HECM program signaled the beginning of the end—that is, the end of business as usual. Consequently, FHA tightened lending ratios, reducing principal limits by 15 percent, and restricted first-year distributions while effectively eliminating the Standard fixed-rate HECM. As lenders scrambled to adjust, loan officers found themselves with fewer products to offer to a shrinking market. In addition, the FHA was forced to rethink the parameters of the original HECM program, which had gone largely unchanged since its inception in 1989.
Is It Product or Opportunity?
In speaking regularly with HECM professionals across the country, I have uncovered a common theme among those concerned about the recent changes to the program: regulations that limit our market. One could agree in part. Yes, HUD and the FHA have limited our ability to serve our typical needs-based borrowers, but they have not limited our overall market. Most industry figures show a mere 2 percent of eligible senior households have taken a reverse mortgage, leaving a staggering 98 percent untouched. Who are these other 98 percent? As the reverse mortgage program becomes an increasingly mainstream option among the public and financial planning community, we will begin to slowly make inroads to a vast and untapped group of homeowners who may not be our historical needs-based borrower. NRMLA, along with industry leaders, has launched the Extreme Summit initiative to rebrand our image while expanding the HECM’s reach. In fact, a recent preview of an upcoming national television commercial shows a new emphasis on a reverse mortgage as just part of one’s track record of making successful decisions. Looking at our industry’s market penetration, one question comes to mind: Should we be focusing on our challenges in serving the 2 percent, or should we concentrate on ways to expand our reach to the other 98 percent?
Collectively, we face strong headwinds in 2014. Yet the promise of a more widely accepted product, coupled with a rapidly expanding demographic, give cause for a resurgence of the HECM in the near future.
