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February 7th, 2011 | by eecker Published in News, Reverse Mortgage
Several months after the FHA’s launch of its new HECM Saver mortgage insurance premium option, the Washington Post reported on its appeal of the Saver in offering a much lower startup cost than that of traditional reverse mortgages.
“It opens up new options for people to think about in terms of how they tap their equity as a retirement resource,” Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, told The Post. Rolled out in October 2010, the Saver allows borrowers to spend much less in startup fees. On the flip side, the total amount that can be borrowed is less. With the Saver, the borrower will pay .01 percent of the home’s value in upfront insurance premiums, just a fraction of the 2 percent he or she would spend on traditional reverse mortgage premiums.
Depending on the borrower’s age, the total amount that can be borrowed is between 10 percent and 18 percent less than under a traditional HECM.
Additionally, many private lenders have lowered or completely waived origination fees, Peter Bell, president of the National Reverse Mortgage Lenders Association told The Post. This is due to the premium investors are paying for reverse mortgage-backed securities, he explained.
According to Reverse Mortgage Daily:
February 2nd, 2011 | by admin Published in FHA, Guardian First, Liberty Reverse, Live Well Financial, MetLife, NRMLA, News, Reverse Mortgage
Only a few months after the release of the HECM Saver in October 2010, the new product is gaining traction with some lenders, while others are just starting to turn their attention to the low cost reverse mortgage product.
Different than the Federal Housing Administration’s HECM Standard, the Saver provides consumers access to a reverse mortgage product without the traditional upfront costs associated with the loans. Dubbed by some in the industry as the “HECM Savior”, many hope it could help reach a new group of borrowers – consumers without mortgage balances – and compete directly with a traditional home equity line of credit.
Four months after the release, judging the success of the product has been difficult due to limited endorsement and application data from Department of Housing and Urban Development. The first batch of data released shows that 19 HECM Saver loans were endorsed in November and 75 units in December.
Not easy to get excited about those numbers, but MetLife Bank surprised and shocked many when it told RMD that almost 20% of its business is coming from the HECM Saver.
It was the first encouraging sign the HECM Saver was starting to catch on and RMD soon learned that other lenders like Genworth Home Equity Access are having success with the product as well. The Rancho Cordova, CA based lender told RMD it has seen the share of HECM Saver applications increase from 8% in December 2010, to 19% of retail applications for January.
“We see the HECM Saver as a great opportunity to reach new customers who may not have considered a reverse mortgage before due to its fee structure,” said Pete Engelken, President of Genworth’s reverse mortgage division. ”We’re also seeing more interest in the HECM Saver from HELOC consumers as HELOCs are more difficult to obtain these days.”
While larger lenders are having success out of the gate, brokers aren’t having the same results.
“I see it being a benefit in the product mix, but I’m not sure if it will be a huge boost to the industry, especially with the appraised values that we are seeing,” said Jack Belles, President of Reverse Mortgage of New England. The company hasn’t closed a HECM Saver yet, but they’re not alone. Live Well Financial, a wholesale reverse mortgage lender told RMD it’s seeing the HECM Saver slowly catch on with brokers.
“Since the closing costs are greatly reduced, this product is likely to be the first step at cracking the adoption challenge for 62 and older homeowners with no mortgage existing mortgage,” said Brett Ludden, Senior VP of Live Well Financial. ”My primary concern is the risk that there will be attempts to quickly refinance HECM Savers into HECM Standard.”
It’s a concern shared by many investors and is part of the reason pricing is so different from the HECM Standard. Due to the lack of performance data on the product, interest rates on the HECM Saver remain higher and back end premiums are small or non-existent for many. Therefore, brokers will need to move back to an upfront origination fee based model and considering the challenging marketplace, it’s not something many are interested in doing right now.
“The economics of offering the HECM Saver is different and brokers need to realize that if the secondary market execution is lower, they’re going to need to change their model,” said Jason Levy, Guardian First Funding Group. “Lenders will need to re-write their sales process and re-educate their loan originators.”
If execution in the secondary market remains weak, brokers will need to generate additional volume in order to make it a legitimate business. Companies like Guardian — which runs a call center based model for retail — seem to be a good fit but Levy said the company hasn’t started to promote the HECM Saver through the Robert Wagner brand yet.
“It’s very hard to target one product to the mass media which is why we have to deliver a message that we’re going to educate the consumer on reverse mortgages and give them options.”
One challenge for brokers is that many banks and large lenders are offering the HECM Saver without an origination fee. ”Brokers can compete if there is some type of draw,” said Cliff Auerswald, loan originator at All Reverse Mortgage Company (ARMC). The company has closed three HECM Saver loans so far and has another two in progress.
If most of the HECM Saver loans are adjustable rate with a line of credit —like it’s reported to be— there isn’t much they can do if there is no draw taken at closing. ”It’s difficult for a broker to compete when the banks can originate those scenarios at zero origination fees,” he said.
When banks hold onto the loans, they can make money on future draws, something brokers don’t have the ability to do. ”We do include the Saver when we educate our customers and have found some for whom it makes sense and for whom we could offer competitive scenarios,” said Auerswald.
But it isn’t stopping wholesalers from educating brokers on how to be successful offering the product. Genworth told RMD it’s starting to train brokers on the benefits of the product and provide insight into how to effectively target consumers.
“Because the HECM Saver compares very favorably with a HELOC, we have developed a side by side comparison that brokers can use in presentations with their customers,” said Engelken. “In the coming months, we expect to launch additional sales and marketing tools for brokers exclusively focused on the HECM Saver.”
While it’s still too early to judge whether the HECM Saver has been a success, initial results from lenders show it’s starting to catch on and that’s encouraging news for the industry. Why? Because the program plays in important role from a budget standpoint as well.
Last year, HUD requested $250 million from Congress to offset projected losses in the HECM program. Without that money, HUD would’ve be forced to significantly cut the principal limits for the second year in a row. Instead, HUD worked with the industry to develop the HECM Saver, which not only offers a low cost product to consumers, but was also designed to help offset the risks associated with the HECM Standard.
The agency has been very vocal about the need for the HECM Saver to be successful to ensure no additional cuts to the HECM Standard are necessary.
“Your ability to operate the HECM Saver and use it as much as you possibly can will enable us to keep the Standard alive and thriving,” said David Stevens, FHA Commissioner during a speech last year at the National Reverse Mortgage Lenders Association’s annual trade show.
During an interview with RMD, Stevens said the more successful the HECM Saver becomes, the less likely it’s that the HECM program will need additional support from Congress.
“With more fiscally conservative views coming out of Congress, we need to be very careful and make sure the HECM Saver gets up and running, because it will be much harder to receive government subsidies for mortgage products,” he said.
The media continues its coverage of the Federal Housing Administration’s HECM Saver, a low cost reverse mortgage that was released in October 2010.
The latest comes from Inman News, where Tom Kelly writes “the buzz among reverse mortgage professionals at the recent National Reverse Mortgage Lenders Association annual convention was that the new HECM Saver could soon be dubbed the HECM Savior.”
The bottom line was that the FHA had to sharpen its pencil to produce what it thought would be a sustainable reverse mortgage program, given the need to raise mortgage insurance.
The Office of Management and Budget concluded that since many homes had dropped in value, the industry needed to charge more to cover the risk of people outliving the value of their homes. Mortgage insurance premiums were raised on most federally insured programs, including “forward” mortgages.
The result was to retain one program (HECM Standard) where owners could take out more funds with a higher upfront fee, plus introduce a cheaper program where homeowners would pay less upfront yet have lower maximum borrowing limits.
FHA Commissioner David H. Stevens told conference attendees that while he was bullish on both the HECM Saver and HECM Standard, he indicated that the HECM Saver was critical to the overall success of federally insured reverse mortgages.
The Chicago Sun Times is reporting that when the Federal Housing Administration created new rules for reverse mortgages, it opened up the door for additional opportunities and lower cost loans through the HECM Saver program.
Sun Times columnist, Terry Savage writes “Now that most lenders have launched these new products, it’s worth an updated look.” Savage has been a big supporter of the product, which she describes as:
Basically, you are just borrowing from yourself — although you will be paying interest on that loan. But the interest is added to the amount of equity taken out of the home. When you sell the home, or die, the amount you have borrowed out of your home’s equity must be repaid from the sale proceeds.
Importantly, you — or your heirs — can never owe more than the home is worth. And you can never be forced out of your home because you’ve “run out” of equity. Eventually, when the home is sold, because you move or die, any proceeds (minus the withdrawals, interest and fees) are returned to you, or your heirs.
If that sounds too good to be true, this is the one product that really is as good as it sounds — if you understand all the details and costs.
Important facts about reverse mortgage options.
If you know a senior homeowner is strapped for cash, a reverse mortgage can generate cash to enable them to remain at home for many years. Last fall, the Federal Housing Administration creates new standards, and opportunities for reverse mortgages at a lower cost. Now that most lenders have launched these new products worth a look to date.
Why Do I Need the Money?
Since home loans can be costly, you need to be clear about how you plan to use the money. Some homeowners like to plan by taking out a line of credit. These funds give them the flexibility to pay for expenses as they arise. Others want a lump sum for home improvement a specific, one¬time cost such as adding a bathroom or paying off an existing mortgage.
How long you will need the loan will also make a difference in your decision. Are you tapping home equity to solve an immediate problem? Or do you need funds for many years to pay ongoing household expenses? When you take out a loan to tap a portion of your home equity, you usually cannot use the remaining equity for other needs until you pay off the loan. It is important to look at your overall financial situation, or you may find use the remaining equity for other needs until you pay off the loan.
It is important to look at your overall financial situation, or you may find yourself stuck with a loan that doesn’t fit you’re changing needs.
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