2017 HECM Changes

In a move that shocked the entire reverse mortgage industry, HUD released Mortgagee Letter ML 2017-12, which will have a huge impact on the reverse mortgage program. The Mortgagee Letter indicates that in order for FHA to continue to endorse the HECM loan program, changes were needed which would increase the upfront Mortgage Insurance Premium (MIP) for many, lower the annual MIP for all as well as reduce the amount borrowers will be able to receive under the program for all new Case Numbers assigned on or after October 2, 2017.The first change noted is to the initial MIP and the Annual MIP. For some borrowers, this change will be a big savings while for others, it will increase upfront closing costs. Borrowers who utilized more than 60% of their initial proceeds due to paying off existing mortgages or using a reverse mortgage to purchase a home prior to the change had to pay an initial premium of 2.5% of the maximum claim amount, which is the lesser of the property value, HUD lending limit (currently at $636,150) or purchase price (if applicable). The new upfront premium of 2.0% will represent a 0.50% savings to those borrowers. However, borrowers who utilized less than 60% of their initial proceeds prior to the change will see their initial upfront MIP increase from 0.50% to 2.0%. Borrowers who planned on setting up a line of credit or monthly payment will now see a higher upfront cost. The annual MIP will drop to 0.50% of the outstanding balance compared to the current 1.25%.

The second change that will have the largest impact on the HECM reverse mortgage program is a reduction to the amount of cash that borrowers will have access to. This was done by way of two changes. The biggest change was that HUD lowered the 5.0% floor to 3.0%, so any loan above 3.0% will now see a reduction in the amount of proceeds available with each rate increase. Additionally, HUD lowered the Principal Limit Factors for most borrowers, even at the floor.

Bottom line is that borrowers who plan on taking more than 60% of available proceeds will see a reduction in closing costs, but they will also see a reduction in available proceeds. Those taking less than 60% will see their initial upfront costs increase. All borrowers will see their annual MIP drop by 0.75% of the outstanding balance per year.

For those borrowers who wish to achieve the maximum available to them should consider starting their reverse mortgage right way. We always see a rush of applications prior to a major change like this one. As such, counseling agencies may become inundated with calls, so plan ahead and call today. In California, we have a 7 day cooling off period in which the lender cannot order a case number for 7 days after counseling has been completed (the 7 day period doesn’t include the day of counseling, so it is technically 8 days).

Beat the HECM changes. You can protect your current limit by getting a case number assigned prior to October 2nd. In order to obtain a case assignment, we need a fully signed application and counseling certificate returned to our office no later that September 29th.

The chart below shows a comparison of the old Principal Limit Factors (PLFs), the new PLFs, the percentage change in the PLF from the old to the new as well as an example of Principal Limit (PL) assuming a home value of $300,000 and interest rate of 5%. If you wish to manually calculate the difference in your own scenario, find your age, then use the % change and multiply it by your home value. That will represent how much less is available to you under the new program.

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The Fixed Rate Saver Program does not offer the same dollar benefit as the Standard Program, however does have some features that will make it attractive to many borrowers. Due to the lower risk of the program to HUD, the Upfront Mortgage Insurance Premium (UFMIP) is just 0.01% of the lesser of the appraised value or lending limit (currently $625,500) as opposed to the Standards 2% UFMIP. For example, a property valued $200,000 will have an UFMIP with the Saver Program of $20, while the Standard would have $4,000.

Use our reverse mortgage calculator to see how much you qualify for under either program.

For borrowers looking to maximize the amount of money available to them after March 31st, the Adjustable Rate Standard program will still be available and will provide borrowers with a greater draw amount than the HECM Saver Fixed. Some borrowers may also choose to utilize the adjustable rate standard when looking to do a purchase reverse mortgage. There has been some discussion of limiting draw amounts under the Adjustable Rate, but this current news does not address that concern.

According to Mortgagee Letter 2013-01, HUD states that the elimination of the fixed rate standard product is “to help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Insurance Fund.” Other steps, such as financial assessments or limited draws may be on the table in the near future. It’s anyone’s guess what they think HUD’s next move will be to help preserve the Mutual Mortgage Insurance Fund.

For any questions or to get started today please call us toll free at 1-888-888-4834 or apply online. If you need the full ability and security of the fixed rate standard, now is your time to make your move.

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The CFPB reverse mortgage report spans more than 200 pages of research recently conducted by the Consumer Financial Protection Bureau and highlights several key areas that the Bureau presented to Congress. Here are three of those highlights noted by the CFPB and questions you can ask yourself to make sure you have all the necessary information before taking out this type of loan.

Finding: Spouses of reverse mortgage borrowers who are not themselves named as co-borrowers are often unaware that they are at risk of losing their homes.

The amount of reverse mortgage proceeds you can receive will depend on the amount of home equity you have and the age of the youngest borrower. For a married couple, both spouses must meet the minimum age requirement of 62.

If one of the spouses is removed from the home title, that spouse can not be named as a borrower, and therefore, does not assume home ownership if the borrowing spouse passes away or leaves the home. It is important to understand the implications of removing a spouse from the home title before making this decision.

Finding: Reverse mortgage borrowers are using the loans in different ways than in the past.

The CFPB finds the average borrower age has fallen, with more than half of borrowers in 2011 falling under the age of 70. While borrowers have the option to take the loan as a lump sum, in term or tenure payments or as a credit line, the CFPB found borrowers are most often taking the fixed rate, lump sum option.

Your lender should provide all options to you, and can walk you through the differences so that you can make an informed decision about which option is best. While the CFPB points to the younger borrower average as a concern, several recent studies have found borrowers who take the reverse mortgage as a credit line as early as possible can actually extend their retirement savings the longest.

Finding: Reverse mortgage counseling needs improvement.

The CFPB found that counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs work.

Counseling is a requirement of anyone who submits an application for a reverse mortgage. Independent counseling agencies around the country receive government funding and donations in order to offer their services.

Among the CFPB’s concerns is the way counseling is funded. Typically, agencies receive their funds on an annual basis. Because the funds differ from year to year and sometimes month to month, there can be variations in cost borrowers face. Your lender is required to provide a list of agencies that offer counseling and you are welcome to shop around to find the counseling agency that is best fitting to you.

If you have questions about any of these topics or would like more information on how a reverse mortgage might work for you, contact us. We’re happy to help.

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There is a lot of speculation as to why Wells Fargo reverse mortgage would make this move. In their press release the company stated that “the decision was made based on today’s unpredictable home values along with the restrictions associated with reverse mortgages that make it difficult to determine seniors’ abilities to meet the obligations of homeownership and their reverse mortgage, e.g., payment of property taxes and homeowners’ insurance. The government’s HECM or reverse mortgage program was designed in a different economic time.”

We are going to see some pricing increases as we saw when Bank of America left the reverse mortgage business. If fact, it happened already today. The reason is that the secondary market becomes very uneasy when such a large originator of reverse mortgages decides to stop offering the product.

Here’s an email we received from one of our wholesale lenders today:

“I’m sure you all have seen the pricing drop from all Reverse Mortgage lenders and what I’ve been told by secondary is due to the recent announcement of Wells Fargo exiting the reverse mortgage arena most banks have dropped pricing until they see exactly what the investor community will do here… I think we will be OK, but it is going to take a little time to process and settle into the new landscape. Hopefully, it won’t take too long.”

Many seniors rely of reverse mortgages to improve their every day quality of life. MLS Reverse Mortgage is available to help any seniors who may have began a loan with Wells Fargo or were looking into a loan with them. We offer competitive rates and fees and are very proficient at reverse mortgages.

Wells Fargo will continue to service their existing HECM reverse mortgages. For anyone who may have been working with Wells Fargo reverse mortgage, be sure to check out our reverse mortgage calculator to see how much money you could qualify for.

As this is a new story, we will be sure to post more details as we receive them.

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Looking at data from the U.S. Department of Housing & Urban Development, researchers point to Miami as the top reverse mortgage market in the country by a 2-to-1 margin. The Federal Housing Authority insured 9,561 home equity conversion mortgage (HECM) loans in the Miami metro area, followed by Los Angeles (4,126), Tampa (3,956), Santa Ana, CA (3,695), Baltimore (3,595), Phoenix (3,582), Orlando (3,556), Richmond, VA (3,493), Philadelphia (3,317) and Chicago (3,184) to round out the top 10.

The new HUD data indicate that turmoil in the broader mortgage market is not affecting the growth of reverse mortgages. The number of federally insured reverse mortgages closed in 2008 grew 6.4% to 115,176 loans.

“As more seniors try to figure out how to cope with today’s economic conditions, the HECM program takes on increased significance,” says Peter Bell, president of the National Reverse Mortgages Lenders Association.

Bell says he anticipates newly enacted changes to the HECM — including a higher loan limit, lower fees, a home purchase component, co-op eligibility and stricter consumer protections around cross-selling reverse mortgages with other financial services products — will lead to even more growth in the coming months.

Source: SeniorsNews.net

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