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Settling in with the ‘New Normal’ in Reverse Mortgages

By Tory Barringer

If your business is anything like most others existing in the reverse mortgage space right now, then the last week of September was a busy one for you. That was the last week of business before HUD raised minimum upfront costs for some borrowers and principle limiting factors, resulting in a tidal wave of business and mandatory counseling sessions as seniors scrambled to get ahead of the more restrictive rules, as reported by The Wall Street Journal, Investment News, and a slew of other media outlets—as well as by Bill Trask, general counsel at Security One Lending.

“That was an adjustment because it came with a short fuse. We had to ramp up in terms of our systems and educating our sales force and educating our operations so we could accurately do these loans with the new numbers,” Trask explained in a phone call. “There was a large amount of business that got pushed in before [the change]. … Some people were jamming loans in all [throughout September] until Oct. 2. We’re kind of getting over that hump, digesting that large volume of loans.”

While HUD Secretary Ben Carson argued that the change was necessary to ensure both the continued health of the HECM program and to avoid any negative impacts on the department’s other activities—including FHA loans for young first-time homebuyers—it’s left many heads spinning as RM originators work to hash out the “new normal” in their industry.

The larger issue, Trask explains, is not that fewer people will necessarily qualify for an HECM under the new numbers, but that taking out a reverse mortgage will simply make less sense for many people. With upfront fees rising and available loan amounts falling—adding in the fact that a large number of Baby Boomers are heading into retirement with mortgage debt still dangling over their heads, as reported by Fannie Mae—the upshot just isn’t there anymore for many retirees. (In the midst of the groans over the initial insurance cost and principle limiting factors, it should be noted that ongoing insurance premiums are actually down compared to before, though that may not be enough to sway consumers.)

As is usually the case, mapping out the road ahead first requires taking a look back. If you haven’t done so already, review your book of business over the past year and crunch those numbers to determine 1) how many of your average customers would be eligible for an HECM product at this point, and 2) how many of those eligible would even benefit significantly. From there, determine how your own advertising and communications will mesh with what they’re thinking.

Check Part 2 of this article, which will review compliant vs. deceptive reverse mortgage advertising, in our January 2018 issue.

Tory Barringer is managing editor of Mortgage Compliance Magazine. He can be reached at TBarringer@MortgageComplianceMagazine.com.

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