The head of Generation Mortgage Co. called the recently enacted changes to the Home Equity Conversion Mortgage program "really positive" and should lead to a successful future.
Jeff Lewis, chairman of the Atlanta-based company, said there was a perception by the government, accurate or not, that the reverse mortgage program needs more revenue in order to break even.
Furthermore, the industry wants the program to be self-sufficient. So the increase in the mortgage insurance premium is "a necessary evil," Lewis said.
"It is very important for the long-term viability of the program that it be self-sufficient and that it is perceived to be not a problem for the government, but an opportunity," he explained.
Part of those changes included the introduction of a new product, the HECM Saver. This new product will make a HECM more affordable for "a lot of our floating-rate customers who were already using the program," as well as bring in customers who might be younger and in a better financial situation than the typical borrower, he said.
The drop in the floor in the standard program will allow lenders to provide more proceeds to the borrower. When combined with the change in MIP, "for the consumer that is using the standard product, who is very much proceeds oriented, I think they are willing to make that trade-off.
"So when you combine these three changes, I think there is something for everybody," Lewis said. Consumers end up with more choice and thus the industry can appeal to a broader array of potential borrowers.
At a recent National Reverse Mortgage Lenders Association conference, Lewis went on the record saying in fiscal year 2011 the industry will do 100,000 units of HECMs and even made a couple of wagers regarding that. At the peak, reverse mortgage lenders did about 115,000 units; in fiscal year 2010, they did under 80,000.
The industry spent the past year regaining momentum after the cut in proceeds at the start of fiscal 2010 affected interest in the program. A typical month before the cut had Generation running between 8,000 and 10,000 applications a month.
News of the cut drove September 2009's volume to 19,000 applications; one month later, there were only 5,000 applications.
This was compounded by the drop in home values, which also affected the attractiveness of the product.
Now, prices are starting to stabilize and people enquiring for a reverse mortgage now have a better grip on what their house is worth than in the past, he said.
The need for the reverse mortgage remains, Lewis continued, but he then noted this is because the economy is now a great strain for the children of Generation's customers.
He called this the "sandwich generation," baby boomers that are financially supporting both their parents and their own children.
"We believe the reverse mortgage is probably the most common financial transaction in the country, just that most of the time people don't do it with FHA. They just do it informally in their family, where the child sends money to their parent every month. Once the parent leaves the house, the child ends up with the house—that's a reverse mortgage," Lewis said.
Generation recently completed a survey with Zogby about the “sandwich generation,” which found 78% of that group feels they will not be able to retire "comfortably," while more than half said they will need to work at least part time during retirement.
In addition, over half admitted not making at least one kind of debt payment during the past year, whether it was rent, mortgage, credit card, auto loan and/or student loan, because they lacked the money do so.
"The kids are stuck in the middle. Their own house hasn't appreciated; their own IRA is not appreciating. Their children are having trouble finding work and their parents are also stretched," he noted. This in the end could lead to more people needing reverse mortgages.
"Given how many people are in some state of financial stress, it would be shocking to me if our business is not as big this (fiscal) year and next (fiscal) year as it was a few years ago," Lewis said.
