“We are considering some other changes [to the HECM program]”. HECM is the governments moniker for the FHA insured reverse mortgage. Those are the words of FHA Commissioner Brian Montgomery during a media conference call for the release of FHA’s report to Congress. “I don’t think we ever envisioned that the FHA reverse mortgage product would dominate the market, for now, almost 30 years. ….there have been some proprietary products that have grown in the industry.” The feds look to be wanting less of the reverse mortgage market in favor of the private financial market providing the opportunity for seniors to use their homes equity for better purposes.
32 years ago that Congress passed a bill creating a pilot program of the Home Equity Conversion Mortgage. As it’s said, ‘the rest is history’. Until 2002 HECM loan volumes were anemic. Then new loan volume broke 10,000 units for the first time ……it then skyrocketed seven short years later to a staggering 114,000+ loans.
Congress did not anticipate that the federally insured reverse mortgage would consistently represent over 90% of the market? In the last decade, both HUD and FHA officials have expressed their desire for an expansion of the private market and less reliance on FHA.
In the years leading up to the housing crash of 2008, there were a handful of popular private reverse mortgage options on the market. While primarily popular with homeowners with values that exceeded FHA’s lending limit, they did not significantly shift new applicants with moderate home values away from the HECM program.
What is a reverse mortgage? Traditionally, private or proprietary reverse mortgages have been confined to homes that appraised above the national lending limit. Recently, however, a few select lenders have broadened their product offerings- one to include properties valued as low as $400,000. This could entice potential borrowers who wish to avoid the significant upfront and ongoing costs and want to avoid up front and then ongoing FHA mortgage insurance premiums.
What would possibly attract more homeowners to a private reverse mortgage solution? Here are just a few existing and potential features that are appealing.
- Broader eligibility for those with home values closer to the national median home price.
- Lower up front costs
- Increased access to the home’s value for properties in areas with historically rapid home appreciation.
- Simplified underwriting and qualification guidelines.
- Risk-based interest rates or loan pricing based on credit history and average regional appreciation rates.
- The flexibility to include a line of credit along with period lump-sum payouts.
We are now offering some of these new features and are expecting the private market to bring more soon. Despite the incredible potential of private reverse mortgage loans, the HECM continues to attract the lion’s share of older homeowners.
As long as the housing market conditions remain ideal expect us to be providing more innovative private products that may move us toward a more diversified market.