Reverse mortgage lenders are stretched thin to the point of having to turn borrowers away amid a surge in demand from seniors rushing to get loans before Department of Housing and Urban Development policy changes take effect Oct. 2.
The new rules will revamp fees and lower loan limits on Home Equity Conversion Mortgages in an attempt to stabilize the program's financial footing. HECM loan applications have spiked notably since HUD announced the changes in late August, according to ReverseVision, developers of a loan origination system for reverse lenders.
"Applications have increased at least 12% from Aug. 25 to Sept. 25, echoing the flurries of activity we saw following the introduction of changes to the program in the past, such as HECM60 and Financial Assessment," said Wendy Peel, a vice president at the San Diego technology firm.
"Scrambling is the best way to put it," said Justin Knock, director of business development at San Diego-based lender Reverse Mortgage Lending. "For customers considering a reverse mortgage, it really pushed a lot of them off the fence. The changes to the principal limit factor rules are pretty drastic, and left a lot of borrowers with a now-or-never decision to make."
Some lenders have even had to turn down potential borrowers as a result of high demand. Likewise, reverse mortgage housing counselors are grappling with capacity constraints.
"Our system has the ability to handle the increased volume, however we’ve seen a bottleneck with the reverse mortgage counseling agencies," said Knock. "They've been staffed to handle what has, until now, been a pretty consistent stream of business. The sudden changes left them unprepared to meet the increased demand of borrowers trying to beat the Oct. 2 deadline."
Some areas of the country with large national agencies were affected by Hurricanes Harvey and Irma, further strengthening the burden of application demand on other HECM lenders. And aside from a heavier workload, the changes may also disrupt typical business practices.
"The industry will need to adjust business models to balance with loan amounts and prepare for various interest rate environments. This may require significant tactical shifts by some companies and it is possible that a few could depart the industry, but overall the industry will move beyond this," said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.
After the policy changes take effect, industry professionals expect reverse mortgage demand to slow.
"I think that the reverse mortgage business will retract for a while, for two or three months. But in the long run, there's a great need for this particular loan product for the senior population, said Ellen Skaggs, reverse national sales manager at New American Funding in Tustin, Calif.
And despite the commotion caused in the interim, many agree that policy changes are necessary, with benefits helping sustain the HECM program, supporting the government and taxpayers and improving reverse mortgage lending.
"It's ensuring longevity," said Knock. "It will probably get tougher for individual originators, but lenders and investors see the value in a stronger and more reliable mortgage-backed security."