Georgia Reverse Mortgage: 11/3 Reverse Mortgage Daily

Reverse Mortgage Daily

Fundamental Question About Impact of the HECM Program Remains Unanswered

November 2, 2010 at 5:40 PM

As the Home Equity Conversion Mortgage (HECM) enters its third decade, one of the reverse mortgage industry’s leading experts and often referred to as the “Godfather” of the program says the most fundamental question about the consumer impact of the HECM has yet to be answered.

Ken Scholen, Director of the National Center for Home Equity Conversion tells RMD the program was created on the statutory premise that it would “reduce the effect of economic hardship… at a time of reduced income.” Now, 21 years after the first HECM was closed, Scholen wants to know if the HECM product is serving the long term financial interests of borrowers.

While the Department of Housing and Urban Development is required by the Housing and Economic Recovery Act of 2008 (HERA) to conduct a study to determine "appropriate consumer protections and underwriting standards" for the HECM program, Scholen says it fails to address the bigger picture of the product.

Even though surveys by organizations like AARP have found the majority of current HECM borrowers say the product has had a positive impact on their lives to date, Scholen says these surveys have not included substantial samples of former borrowers.

“We don't know how many former HECM borrowers see these loans as a positive financial tool that helped them through a time of financial distress, and left them with sufficient equity to meet their ongoing needs,” says Scholen. Additionally, there is no data on whether borrowers spent a lot of their equity in their 60s to mid-70s, “only to regret such spending after they have paid back their loans, and then finding themselves needing their already-spent equity in their later 70s and 80s.”

As the average age of borrowers with reverse mortgages continues to drop, the need to survey borrowers who have terminated the loan couldn’t be more important. ”The youngest borrowers may have the greatest risk of depleting their equity too soon,” he says.

Scholen stresses that he is ardent supporter of the HECM program, but believes a substantial survey of former borrowers would create confidence that the industry is seriously concerned about the products overall impact on consumers.

Chart of the Day: Prepayment Speeds of HECM vs. Private Reverse Mortgages

November 2, 2010 at 4:08 PM

Prepayment speeds for non-conforming reverse mortgages have always been higher than HECM products according to New View Advisors. The company’s prepayment index shows that HECM prepayment speeds have stayed relatively even over the years and has fallen with the collapse in home values.

Jumbo reverse mortgages are a whole different story. As you can see from the chart below, prepayment speeds for non-conforming products rose dramatically starting in the middle of 2006.

New View tells RMD the increase in prepayment speeds was driven by the addition of several new proprietary products that offered higher LTVs, creating a mini-refinance boom. When home values started to drop, borrowers became less mobile and prepayment speeds have declined dramatically.

Sun West Partners with Capital Markets Cooperative

November 2, 2010 at 2:28 PM

Capital Markets Cooperative announced a new strategic alliance with Sun West Mortgage Company that will provide CMC clients premier pricing and services as well as advanced training and marketing programs geared towards its clients.

“We’re very pleased to partner with Sun West Mortgage Company," said Tom Millon, president/founder of CMC. "The firm’s approach to offering additional mortgage solutions and long-standing Ginnie Mae direct issuer status brings new competitively priced options to our membership.”

According to Pavan Agarwal, executive vice president of Sun West Mortgage Company, “We are proud to partner with Capital Markets Cooperative and member firms. CMC’s groundbreaking approach to mortgage banking fits with Sun West’s philosophy of helping our clients increases CMC’s product offerings which, in turn, benefits local borrowers.”

CMC recently announced that WL Ross & Co. LLC ("WL Ross"), a leading private equity investment firm founded in 2000 and led by Wilbur L. Ross agreed to make a strategic investment in the company.

"We have been very impressed by Tom Millon, his CMC team, and their strong network of partner financial institutions," said Wilbur Ross, Chairman & CEO of WL Ross. "We look forward to working with CMC to expand the services that they can provide its partner institutions."

WSJ: Investigating the Nationwide Foreclosure Mess

November 2, 2010 at 2:27 PM

The Wall Street Journal looks into the nationwide investigation into the foreclosure mess that erupted in September over whether servicers violated state laws against deceptive practices by submitting affidavits and foreclosure documents without confirming the paperwork’s accuracy.

While federal officials also are examining the use of “robo-signers” and other mortgage-servicing procedures, the legal quagmire that is slowing foreclosure sales and snarling courtrooms likely won’t end until the 50-state investigation is resolved.

According to the WSJ, the investigation could lead to civil charges and inescapable pressure on financial institutions to rewrite a mountain of mortgages. Already, there are signs that state officials are working together closely to gain more leverage over companies such as Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co.

Yet there also was a squabble over what to call the investigation, with some state officials preferring “inquiry” and others the word “effort.”

“I’m pleased when people are floating options and trying to look at alternatives,” Mr. Miller says with a smile and a shrug. “As long as they aren’t saying: This is the way it’s got to be.” In an interview last week, he pounded on a wood conference table in a show of mock aggressiveness.

Mr. Miller says the attorneys general will push to clean up the mess quickly, hoping it will boost confidence in the housing market. If the investigation drags on for a year, that would be too long, he says.

One Probe, 50 States, High Stakes