One of the mortgage industry’s biggest advocates for the reverse mortgage product believes there is still a future for the Home Equity Conversion Mortgage in the wake of Wells Fargo discontinuing its production operations, but the Federal Housing Administration needs to make changes to its rules.
Jeff Taylor, now of Wendover Consulting and also a retired Wells Fargo executive who no longer has ties to the company, said that from the industry’s perspective there are two key concerns. One is unstable home values. The other is the inability to do a financial assessment for seniors who want the product to determine if lenders need to require “set-asides” from those seniors to create a reserve to make the borrowers’ tax and insurance payments on their properties.
The industry has been working to try to develop such a financial tool, he added.
The HECM was created in 1987, in a totally different economic era. Back then there were stable home values. “A reverse mortgage is a collateral loan. It’s all about the collateral and if the collateral is endangered, program changes have to be made,” Taylor said.
In an interview done prior to the Wells announcement, Jeff Lewis, the chairman of Generation Mortgage, called the T&I problem the No. 1 issue facing reverse mortgage servicers. He quoted the Department of Housing and Urban Development inspector general’s office which said HECM is not a program to provide a T&I subsidy to keep seniors in their house, it is a mortgage insurance program.
One of factors behind the Wells decision to leave the business is the HUD/FHA guidance on handling T&I defaults, which could eventually lead to foreclosures.
Taylor continued, “The industry and HUD will have to sit down and take a long look at the necessary changes. Because here is the sad part: this morning 10,000 people woke up and turned 65 and tomorrow another 10,000 will.
“And while they’ll still be able to get a reverse mortgage, Wells was, in my view, the leader. It’s been doing it since 1990. My entire reverse mortgage career has been spent either at Wendover Funding (which was acquired by EDS) working with Wells—or prior to that, Norwest (which acquired Wells in 1998 but decided to keep the latter’s identity)—or actually working for them for 10 years. So it’s a sad day, and particularly to see 1,000 people (who had worked at Wells) essentially get displaced over issues, that in my opinion, could have been solved.”
Those changes have to be made by HUD to allow lenders to determine early in the process if a potential borrower has had a problem in the past paying T&I. No one wants to make a reverse mortgage with the idea of having to foreclose, he said.
Being able to withhold a portion of the eligible funds and put those into what he termed “a mandatory set-aside, is what the industry needs. And the program was never designed to do that.”
Lenders have suggested for some time doing this, but in some situations (and Taylor emphasized some), the borrower needed every available dollar to pay off their first mortgage to prevent default.
For many seniors, getting a traditional home equity loan, with its monthly payment, is not an option. Plus, even with this type of loan, they would still be responsible for T&I payments, he said.
There are solutions to this issue, “but when the leading lender and the leading supporter of this program feels it is at an impasse, that is trouble in River City in my view,” Taylor said.
He praised the HECM Saver product introduced last fall as one that makes a lot of sense and one that works, with its tradeoff of reduced proceeds for reduced fees.
The reverse mortgage industry is not dead, he added; the National Reverse Mortgage Lenders Association and others are going to do everything they can to work out and expedite changes to the reverse mortgage program.
“That is what I hope happens,” declared Taylor.
