Is The Reverse Mortgage Industry Strong Enough To Overcome Change?
The reverse mortgage industry started out as a fulfiller of dreams to the greatest generation. For its first 17 years of existence, regulators outside of HUD, showed little interest in the burgeoning industry. However, it seemed that once we broke through the 100,000 unit plateau of yearly closed loans, everyone started to take notice.
The last few years have tested the mettle of the industry, its originators and its lenders. They see obstacles where there was once opportunity. Since most of America lives pay check to pay check, many see the obstacles as creating an uncertain policy of no check to no check.
If the industry is to survive, it must develop a clear “Your policy Mr. Regulator is not in the best interest of the seniors and likewise is not in the best interest of the program” voice. Until the industry can do this, it will remain shackled by reckless governmental policy.
In the abstract, change can be welcomed with open arms. However, too much change in too short a time creates nothing but anxiety that will simmer and eventually explode when the anxiety can no longer be contained. There seems to be a scramble to be the” last man” standing.
The menagerie of refinements that have recently occurred have ranged from the harmless to the harmful. Many of the program permutations are noted below. Except for realization number 1, the list is not in any predetermined order. Some changes have already occurred. Others will happen shortly. While I am hopeful that the industry will return to great profitability, there are significant hurdles that must be overcome. The issues have nothing to do with the benefits of the program. It has everything to do with future regulation of the program and of the mortgage industry.
The first realization that something was wrong occurred when Fannie, on its own, started raising the margins on the HECM loans.
The second realization occurred when the HECM program was kicked out of the GIF and placed into the MMIF.
The third realization came when the condo questionnaire was no longer acceptable.
The fourth realization came when the principal limit factor reduced the benefit amounts across the board.
The fifth realization came when HUD required that underwriters substitute their opinion as to the validity of a power of attorney.
The sixth realization came when HUD decided that it was no longer in the banker/broker approval business and wanted to do away with approving correspondents. This future activity appears to be a slap at the SAFE ACT.
The seventh realization came when it was realized that the brokers and bankers were being discriminated against by the tenets of the SAFE Act. (The uneven playing field has decimated the number of originators that would want to work for a banker/or broker.)
The eighth realization came when the appraisal independence program came into full swing. (The only winner here is the appraisal management companies. The losers are the seniors. Many are owned by the depository institutions. The appraisals will come in lower, the process requires that the borrowers always pay for the appraisals upfront and appraisal will be done not by the most qualified appraisers but by appraisers that accept the lowest split of the total fee. The appraisal management company will take its cut then remit the balance to the appraiser.)
The ninth realization came with the announcement that HUD will institute the FIT tool. (Potential borrowers will be quizzed to determine whether they independently possess enough knowledge to obtain a counseling certificate. This process is shameful).
The tenth realization came when the GFE underwent a face lift, liposuction and tummy tuck in one procedure. One document has now become the holy grail of origination documents. (I will agree that the first page of the document is wonderful. Thereafter it is a mess. It has taken the mortgage industry and HUD thousands of man hours to explain just one document. The form, pursuant to Regulation X, makes it harder for borrowers to understand the apportionment of fees. It was created without considering the nuances of reverse mortgage. It does not take much for a senior borrower to say, “This is just too much for me. I’ll pass on the reverse mortgage”)
The good news is that new players have entered the market, investor capital has increased and I am sensing a new attitude that things will be OK. This is why the next year will be quite an interesting year. Like the game of pool, a ball hit too hard against the cushion will have unforeseen caroms. This will set uncontrollable forces in motions. I would like to see the industry hit the cue ball just right so it can win the game and control its own destiny.