Peter Bell: Changes to HECM Program Shouldnt Reduce Loan Demand
Senior homeowners are going to lose access to a very popular FHA reverse mortgage product, but they can still get a similar and lower-cost alternative, according to the president of the National Association of Reverse Mortgage Lenders.
“In terms of consumer demand, I don’t believe it will have that much impact,” said NARML president Peter Bell.
In response to pressure from Sen. Bob Corker, R-Tenn., Federal Housing Administration officials agreed to make changes to its Home Equity Conversion Mortgage program.
FHA officials agreed to impose a moratorium on the fixed-rate, full-draw Standard HECM product by Jan. 31.
This HECM product allows seniors to take out a large lump sum at closing, ranging from 62% to 77% of the appraised value of the property. But too many of these seniors failed to keep up with property taxes and paying homeowner’s insurance, which has led to technical defaults, foreclosures and losses to the FHA mortgage insurance fund.
Seniors liked the fixed-rate feature, but they were often “forced to take out more money than they needed,” Bell told NMN.
As an alternative, they can turn to the fixed-rate, full-draw Saver HECM, which has a maximum draw of 51% to 61%. The Saver has lower upfront fees than the Standard product.
“Consumers will likely migrate to the fixed-rate, full-draw Saver,” Bell said. For those clients that need more money, he said, they can go with a variable-rate HECM product.
HECM loans can be securitized through Ginnie Mae and the fixed-rate, full-draw Standard is very popular with bond investors because of the low prepayment speeds. It is very unlikely seniors would refinance these loans. As a result, Wall Street pays Ginnie Mae issuers very handsomely for these HECM MBS.
The fixed-rate, full-draw Saver has a higher-than-expected prepayment speeds.
“People in the reverse mortgage business have grown accustomed to a continual state of change,” Bell said. “I am confident that once again we will be able to make the adjustment and continue to serve the growing number of senior homeowners who need and want our product,” he added.