REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

The recent signing of the HOUSING AND ECONOMIC RECOVERY ACT OF 2008 (HR 3221) by President Bush puts into motion something that has been long in the making and that’s a modernization of FHA rules for reverse mortgages. Some of the changes facing potential reverse mortgage clients are an increase in the national lending limit from the individual county limits now in place. Folks in some parts of the country will see their lending limit rise from as low as $200,160 to an anticipated $417,000 and that’s good news for those with home values over their county lending limits since any equity access was determined from the lower of the appraised value or the respective county lending limit. In many cases where the reverse mortgage was to utilized to pay off an existing forward mortgage there wasn’t enough cash access to pay off that mortgage and the borrower either had to come to the table with money or look for alternative methods which often led to selling the home and in a down market, that’s neither easy or fun.

Another change is with the origination fee, currently capped at 2% of the lesser of the appraised value or the county lending limit. The new bill will keep the 2% up to $200,000 but cap the origination fee at $6000 which is more than $1200 less than some of the highest fees where county lending limits were as high as $362,790. In that case, 2% of that amount would have resulted in an origination fee of $7255.80.

Higher lending limits combined with lower origination fees are great for those seniors whose circumstances have them looking at ways to increase their monthly cashflow without making risky investments in a roller coaster stock market.

Some new additions to the bill are for folks in co-ops and those looking to use the reverse mortgage as a finance tool to help them purchase a home, most likely in a downsizing event. Currently, only New York co-op owners are able to secure reverse mortgages because of their prevalence. There are other pockets of the country with co-ops and this will be a relief for those co-op owners as other means of financing have disappeared as most boutique programs are no longer available. In the event someone wants to downsize from a larger, more expensive home, the ability to purchase a home using a reverse mortgage is also a welcome addition. As an example, someone in a $400,000 home can sell the home, take a portion of the proceeds for purchase of a less expensive home, say $200,000, and instead of putting up the entire value in cash, they can put down a small portion, in this example, half of the value and finance the other half and not only do they eliminate monthly mortgage payments, they keep a larger portion of their cash in their pocket and in this market, cash is king. Instead of having $200,000 left over from the sale of the home, they now have $300,000 and no monthly payments as long as they live in the home. That’s also great for those that don’t currently qualify for a regular mortgage because of bad credit or insufficient fixed monthly income as those programs have gone the way of the other boutique programs once offered by most forward lending brokers.

Some other features are a prohibition against requirements to purchase additional products as a condition for HECM eligibility such as annuities or life insurance policies. That is good news as the recent negative information about reverse mortgages has been because of this very practice. Folks short on cash flow that need a reverse mortgage should not have their money tied up in any annuity, be it immediate or deferred. The reverse mortgage provides more cash flow with less restrictions than the annuity could anyway in most situations where monthly cash flow is short. Another mention is about a study to determine consumer protections and underwriting standards for HECMs which will help to insure that purchase of any additional products by a consumer is appropriate for the consumer.

We like the new changes, they are consumer protection focused and open up opportunities to help save some homeowners from increasing monthly payments on their forward mortgages that were having a harder and harder time making that increased payment amount and the homebuying function is a great tool for credit challenged or those looking to downsize into more affordable housing.

As the sub prime mortgage mess has unfolded over the last few months, reverse mortgages have gotten some positive press about being outside the fray and largely unaffected by the turmoil.

No more.

In the last week, several lenders and brokers have ceased origination of the new and popular HECM 100 reverse mortgages (more…)

Just three months ago (May 14, 2007) Countrywide, the nation’s leading home lender, made a big debut into the reverse mortgage market with roll out of the SimpleEquity reverse mortgage program. Company officials made it clear at the time that they fully intended to become as big a player in the reverse mortgage arena as they already were in the traditional mortgage market:

Steve Boland, managing director for reverse mortgages at Countrywide, called the entry into these products “a very natural progression” for a lender that already ranked first among the nation’s traditional home mortgage providers by market share. Ultimately, he said, Countrywide aims to “dominate the reverse mortgage industry.”

(more…)

News that Genworth, the Fortune 500 insurance company, is acquiring Liberty Reverse Mortgage, Inc. is further sign that the “big” players in the financial services sector are making serious moves into reverse mortgages. But this transaction is unique in one respect: Genworth is primarily an insurance company, not a bank.

Why is this important? (more…)

When BNY Mortgage announced several weeks ago that it would offer Home Equity Conversion Mortgages (HECM) reverse mortgages to borrowers at a reduced margin of 1.00 over the one-year US Treasury rate, it was clear that competing lenders would have to respond sooner or later. A couple weeks later Wells Fargo, the largest reverse mortgage lender by far, announced its own 1% margin HECM loan product. Since then, press releases announcing lower margin HECMs have been coming out almost non-stop:

CERRITOS, Calif./EWORLDWIRE/Feb. 22, 2007 — Sun West Mortgage Company, Inc., one of the leading innovators in the reverse mortgage industry, is proud to offer the HECM 100 and 125 to complement the traditional HECM150 product. These new HECM products allow Sun West’s broker partners to remain competitive as the secondary market for reverse mortgages becomes more efficient.Sun West Mortgage

The HECM 100 and 125 are fully integrated into Reversesoft and are available immediately. Reversesoft is Sun West’s origination, processing and servicing system for reverse mortgage loans

BABYLON, N.Y./EWORLDWIRE/Feb. 19, 2007 — Advanced Funding Solutions of Babylon, N.Y. expands its line of reverse mortgage programs to include lower costs and greater funds available to senior homeowners.

Announcing today that it has lowered costs, interest rates and increase available funds associated with its reverse mortgage offerings, Advanced Funding is staying in the forefront of protecting seniors and providing true benefit. Due to recent changes in the HECM program, lower interest rates combined with more funds available to senior homeowners translates into a winning combination to seniors. In addition, Advanced Funding Solutions has lowered certain fees in conjunction with the new programs to make them even more attractive and more practical to an older population.

RICHMOND, Va./EWORLDWIRE/Feb. 15, 2007 — Live Well Financial, Inc., one of the nation’s leading reverse mortgage lenders, announced the offering of a new federally-insured Home Equity Conversion Mortgage (HECM) that provides homeowners with access to more cash while also reducing the margin on the product.

“Live Well Financial is proud to be able to offer the new HECM 100 Monthly product to our senior customers. This HECM product offers more proceeds at a lower rate of interest than the standard HECM 150 Monthly product,” said Michael Hild, chairman, president and CEO of Live Well Financial. “The reverse mortgage industry has gone far too long without any true product innovations. Live Well Financial is happy to be a part of this new offering, and we look forward to many future products that will allow seniors additional options and lower costs.”

DATELINE: BRAINTREE, MA…Harbor Mortgage Solutions, Inc. of Braintree, MA has announced the availability of a new reverse mortgage program, the HECM 100. The HECM 100 is a FHA/HUD insured Home Equity Conversion Mortgage (HECM) that features an interest rate that is one-half percent lower than the current HECM reverse mortgage program rate.

Harbor Mortgage President, Chris Downey commented, “This is a significant breakthrough in the reverse mortgage marketplace. The HECM 100 enables senior homeowners to be eligible to receive greater cash benefits up front along with lower interest costs over the life of the loan. The one-half percent rate advantage will carry forward for the life of the loan.”

SEATTLE–(BUSINESS WIRE)–Seattle Mortgage (SMC), a leader in the reverse mortgage industry, has expanded their product offering to include reduced margin loans for both the HECM monthly adjustable and the HECM annual adjustable mortgage, therefore lowering costs for senior borrowers.

Designed for senior homeowners, reduced margin loans can provide a higher percentage of available equity and reduced life of loan accrued interest. For instance, a 72 year old couple with a home valued at $325,000 would be eligible for an additional $14,000 in available funds using the reduced margin HECM with a 1.00 margin.(1) They would also save thousands of dollars in interest over the life of the loan.

These enhancements will offer senior borrowers the option to compare 1.00, 1.25, and 1.50 margins on the monthly adjustable HECM and 2.60, 2.85, and 3.10 margins on the annually adjustable HECM.

Clearly HECM loans with a 1.00 margin over the one-year US Treasury rate are the new standard. We have adjusted the reverse mortgage rate tool accordingly and will be reporting the lower margin HECM rate from now on. This is the reason for the sharp drop showing on this week’s interest graph. (The underlying one-year US Treasury rate actually was unchanged from the prior week.)

Everyone knew this day was coming and now it’s arrived. HUD today (2/14/07) made the following announcement with regards to the statutory cap on federally-insured HECM reverse mortgages:

NOTICE ON FHA HECM INSURING AUTHORITY:

The Department has reached the “Reverse Equity” or Home Equity Conversion Mortgage (HECM) insurance endorsement authority limit of 275,000 mortgages. Until Congressional action is taken to increase FHA’s insurance endorsement authority, HECM mortgages cannot be insured. Lenders may continue to request and obtain new case numbers and close mortgages; however, the following message will appear on the screen:

Lenders may continue to close and submit HECM case binders to the FHA Homeownership Centers (HOCs) for insurance endorsement review. The FHAC HECM Insurance Application and CHUMS processing system endorsement screens will issue the following message when the lender enters error free data on the HECM Insurance Application screen or insurance endorsement is attempted.

HECM ENDORSEMENT AUTHORITY PENDING, SEND BINDER TO HOC:

The FHA HOCs will use the following procedures for handling HECM case binders submitted for insurance endorsement. These procedures have been used successfully in past situations where insuring authority has been temporarily removed.

Case binders are received and logged into CHUMS. This verifies the receipt of the binder at the HOC for the lender.

The case binder will be routed to the endorsement contractor and/or FHA staff reviewers for completion of the pre-endorsement review.

If the case is acceptable for endorsement, a NOR will be issued in the system based on the CHUMS message regarding insurance authority (using the language reflected above).

The case binder will be held by the HOC until new HECM insuring authority has been granted. Issuance of a system NOR provides a record for the HOCs and the lenders.

If the case contains deficiencies that warrant issuance of an NOR, the NOR will be generated and the filed returned to the lender for correction.

Updated information will be posted once FHA has received new HECM insurance authority.

If you have any questions or for FHA technical support, please contact the FHA Resource Center: http://answers.hud.govSearch our online knowledge base and find answers to our most commonly asked questions. Use “live help” to get on-line technical support. You can also get email technical support at: hud@custhelp.com or phone FHA toll-free between 8:00 a.m. and 8:00 p.m. ET (5:00 a.m. to 5:00 p.m. PT) at: (800) CALLFHA or (800) 225-5342. Call FHA TDD at: (877) TDD-2HUD (877) 833-2483).

(emphasis added)

The limit on the number of HECMs was originally set in place because reverse mortgages were a new foray for the federal government and the related risks were unknown. Efforts have been underway for the last several years to lift or expand the cap to accomodate the rapid rise in reverse mortgage popularity. To date, these efforts haven’t succeeded.

Obviously, phones will be ringing at HUD and at Congressional offices until the issue is resolved. We’ll keep you informed as we learn more.

Earlier this month we reported on a Wall Street Journal piece that recommended holding off on a getting a reverse mortgage because of changes in the works that could benefit consumers. The first of these changes came last week last week with the announcement by BNY Mortgage Company (BNYMC) of their new HECM 100 reverse mortgage:

HECM 100 is a federally insured HECM loan that offers lower interest rates than a traditional HECM, saving borrowers significantly in costs over the life of the loan while giving them immediate access to more cash.

HECM 100 adds choice to the reverse mortgage buying equation, allowing consumers to borrow more money at a lower overall cost.

For example, a reverse mortgage customer age 70, with a home valued at $300,000 can receive approximately $13,000 more in borrowing capacity with a HECM 100 than the traditional HECM loan. At today’s interest rates, the homeowner will save approximately $28,000 in interest costs over the expected life of the average loan.

So how is BNY able to accomplish this? In a word - competition.

For years the single “buyer” of federally-insured home equity conversion mortage (HECM) loans from originating lenders has been Fannie Mae, the quasi-governmental agency that specializes in buying loans (and reselling them to investors) to maintain liquidity in the mortgage market. Since 2001, Fannie Mae has dictated that in order for it to buy HECM reverse mortgages, it required a markup 1.50% above the one-year US Treasury rate. This markup is passed on to borrowers in the form of a higher effective loan interest rate.

Now, BNY has found investors willing to purchase the same HECM loans at a markup of just 1.00%. Here’s a rate comparison of the new HECM 100 to the standard HECM using interest rates as of the week of January 9th:

(As shown, one side-effect of the lower loan rate is a correspondingly lower credit line “growth rate”, if this payment option is chosen.)

Bringing new competitive forces into the reverse mortgage is great news for potential borrowers. Even officials of the US Department of Housing and Urban Development (HUD) are praising the new HECM 100:

“BNYMC’s introduction of the new HECM 100 product is wonderful news for senior homeowners because it offers the consumer more money at lower costs,” said Meg Burns, director, Single Family Program Development, U.S. Department of Housing and Urban Development. “This is exactly the kind of product innovation the reverse mortgage industry needs in order to help older homeowners live a more comfortable and financially secure life.”

The HECM 100 is now available directly from BNYMC throughout Connecticut, Delaware, Florida, Georgia, Maine, Massachusetts, New Jersey, New York, Pennsylvania, and Rhode Island. In addition, HECM 100 will be available from select BNYMC wholesale partners throughout the United States.

Clearly, BNY has set the bar higher and competing lenders will have little choice but to respond with innovative products of their own. In the near term, don’t be surprised to see sales pitches and pressure tactics to get deals closed escalate. If you’re in the market for a reverse mortgage and can afford to wait, you should. At a minimum, take a look at the BNY reverse mortgage calculator to see what the HECM 100 could mean to you.

More information and opinions on the new HECM 100 reverse mortgage can be found at the ReverseMortgageDaily blog.