A look into data from the 2009 American Housing Survey shows there is plenty of opportunity for the Federal Housing Administration's new HECM Saver, but lenders say it could take some time before the new product catches on.
As an industry, reverse mortgage lenders have become fairly successful at reaching borrowers looking to pay off a large mortgage balance or eliminate a monthly payment. However, with the HECM Saver, the industry hopes it might have the ability to reach beyond this customer and into a bigger marketplace.
According to AHS data, there are more than 18 million seniors (65+ and older) living in owner occupied units, with 65% having no mortgage balance. Those with a mortgage balance have an average loan to value of 35% and an average balance of $50,000.
For an industry hovering around 100,000 units per year, it's a huge untapped market that has previously been out of reach due to the upfront costs associated with the reverse mortgages.
"The HECM Saver will allow us to service our demographic more broadly, namely the group of borrowers who have seen the cost as a hurdle," says Reza Jahangiri, CEO of American Advisors Group. He sees the program as the next step in the life of the HECM program but admits "it will take a pretty substantial industry wide marketing and awareness campaign to gain traction in terms of volume."
The industry knows all to well that changing the publics perception of reverse mortgages isn't a quick and easy task. So convincing consumers that not all reverse mortgage products have large upfront costs will take some time. As far as who is putting real money behind marketing the program today, RMD wasn't able to find anyone… yet.
"It will take some time as lenders will have to entirely re-tool their marketing," said John Lunde President of Reverse Market Insight.
He sees real opportunity in borrowers who previously would've turned to a HELOC in order to meet their additional cash needs. AHS data shows there are more than 1.5 million seniors who have a HELOC with an average loan amount of $50,000. Compare this to the 241,000 seniors who reported they have a reverse mortgage and you begin to see the opportunity.
"There are at least 6 times as many seniors using HELOCs and they're using it for a purpose other than paying off their mortgage," said Lunde.
After the collapse in the real estate market, the availability of HELOCs has been drastically reduced and makes the HECM Saver an attractive option for seniors. "If we don't have people taking a HECM Saver more than the Standard in three to five years, we really missed the boat as an industry," he said.
What role will the jumbo reverse mortgage play in the marketplace today?
Jeff Lewis, chairman of Generation Mortgage, told the Boston Globe it not only meets the needs of borrowers with higher home values, but will also serve aging boomers who are still raising children and helping to support their own parents. Describing an experience at a conference he attended, Lewis asked if they or their parents had a reverse mortgage.
“No hands went up. When they were asked how many were writing a check every month to help their folks, more than half the people in the room raised their hands. For most of their parents, a reverse mortgage would make sense.”
Generation is the first lender to release a jumbo reverse mortgage market since the financial meltdown and closed its first loan in August. It's the first reverse mortgage product that requires a minimum FICO score of 700, why?
Investors want to ensure that borrowers have the ability to maintain the property and pay taxes and insurance.
“The owners are obliged to keep up the property like the other properties in the neighborhood. Since there is no mortgage insurance to protect the lender, the lender wants some assurance that the owner will continue to maintain the property when there is a potential for a negative adjustment (value decreases).”
A law that will impact reverse mortgage counseling in Massachusetts will go into effect on November 1, 2010.
Signed by Governor Deval Patrick earlier this year, the law requires seniors with a gross income of less than 50 percent of the average area income or has assets valued at less than $120,000 (excluding a primary residence) receive written certification from a counselor that the applicant has received counseling in person on the suitability of the transaction.
In addition, the HECM counselor must be approved by the Massachusetts Executive Office of Elder Affairs. If the borrower doesn’t provide documentation of attending the counseling, the state can render the terms of the reverse mortgage unenforceable.
The National Reverse Mortgage Lenders Association was able to delay the in person counseling requirement until August 1, 2012, as it conducts a study on the impact of the provision.
Last year, there were around 3,600 counseling sessions in Massachusetts, with approximately 130 of those being face-to-face. Based on a "mystery shopping" experiment, the association found only eight agency-approved face-to-face counselors in the entire state.
A law that will impact reverse mortgage loans in Massachusetts goes into effect on November 1, 2010.
Signed by Governor Deval Patrick earlier this year, the law requires seniors with a gross income of less than 50 percent of the average area income or has assets valued at less than $120,000 (excluding a primary residence) receive written certification from a counselor that the applicant has received counseling in person on the suitability of the transaction. Additionally, the borrower that meets this description must affirmatively opt in writing for a reverse mortgage loan.
The HECM counseling agency must be approved by the Massachusetts Executive Office of Elder Affairs. If the borrower doesn’t provide documentation of attending counseling, the state can render the terms of the reverse mortgage unenforceable.
The National Reverse Mortgage Lenders Association was able to delay the in person counseling requirement until August 1, 2012, as it conducts a study on the impact of the provision.
Last year, there were around 3,600 counseling sessions in Massachusetts, with approximately 130 of those being face-to-face. Based on a "mystery shopping" experiment, the association found only eight agency-approved face-to-face counselors in the entire state.
Editor Update: A previous version of this article stated that counseling would be changing as a result from the new law which is incorrect. Because NRMLA was able to delay the in person counseling provision, the only real change is that the borrower must affirmatively opt in writing for a reverse mortgage. We apologize for the confusion.
Mortgage originations are expected to fall from an estimated $1.4 trillion in 2010 to slightly under $1 trillion in 2011 according to the latest forecast from the Mortgage Bankers Association.
The industry will see an increase in purchase originations driven by modest increases in home sales and stabilizing home prices. In contrast, MBA refinance originations are expected to fall steadily as mortgage rates gradually increase throughout 2011 and 2012.
“Economic growth in 2010 has been subdued and this trend will likely continue for most of 2011. Households remain cautious given the weak job market. On top of that, uncertainty regarding tax rates for next year, and the potential for tax withholding to increase at the beginning of the year, lead us to forecast that consumer spending will remain weak, particularly in the first half of 2011,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Economics.
The MBA is forecasting the unemployment rate will increase from the current level of 9.6 percent to 9.9 percent by the first quarter of 2011, end 2011 at 9.5 percent, then fall to 8.7 percent by the end of 2012. Mortgage delinquency and foreclosure rates should track this downward trend in the unemployment rate.
“Various factors are driving our rate forecast. The sluggish economy, weak private demand for debt financing, and low inflation are keeping downward pressure on rates," said Brinkman.
Data from the October edition of the Obama Administration's Housing Scorecard shows continued signs of stabilization in home prices according to the Department of Housing and Urban Development.
"Over the last 21 months, the Obama Administration's swift action in the housing market has kept millions of families in their homes and provided responsible borrowers with incentives to refinance or to become a homeowner," said HUD Assistant Secretary Raphael Bostic. "But, with many unavoidable foreclosures still in the pipeline, it's clear that we have a hard road ahead."
According to HUD, new and existing home sales remained below levels seen in the first half of 2010 due to the expiration of the Homebuyer Tax Credit. At the same time, home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.
In addition, more than 3.52 million modification arrangements were started between April 2009 and the end of August 2010, which included more than 1.3 million trial Home Affordable Modification Program (HAMP) modification starts.
“HAMP is not only an important part of the Administration's efforts to stabilize the housing market, it has also redefined the loan modification standard for the mortgage industry overall," said acting Assistant Secretary for Financial Stability Tim Massad.
“Early data shows that well beyond the trial phase, the majority of homeowners are maintaining their HAMP modifications, reflecting the rigorous standards the program uses to provide assistance to responsible homeowners."
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