The third part of this article series aims to provide 10 more must-know about the current state of the reverse mortgage industry. For seniors interested to avail a reverse mortgage loan, these nuggets of truth can help them formulate smart and educated decisions.
On the current state of reverse mortgage industry:
1) In June, the U.S. House of Representatives accorded the Federal Housing Administration (FHA) and the Housing Urban Development (HUD) the authority to tighten terms for reverse mortgages, where it has faced significant losses. In the face of a possible shortfall of $16.3 billion, the FHA intends to institute a series of change on its Home Equity Conversion Mortgage (HECM) product to remain operational. Senior borrowers should be aware of the current and future changes in HECM that will affect their reverse mortgage loans.
2) With the passing of the bill, FHA may now limit the amount for initial lump-sum payments to reverse mortgage borrowers and require escrow accounts to cover taxes and insurance. This means that seniors should be responsible enough to spend their initial lump-sum money to the most important needs. A renovation to keep a house more senior friendly may be considered an immediate need over a third trip to Thailand.
3) Walter Investment Management Corporation credited reverse mortgage for the company’s strong first quarter earnings. The company’s reverse mortgage portfolio accounted for the $14.1 million of the total $27.7 million net income. The statistics provides a positive outlook for the industry.
4) The Consumer Financial Protection Bureau (CFPB) together with the Federal Deposit Insurance Corporation (FDIC) launched a campaign against reverse mortgage proceeds fraud known as Money Smart for Older Adults. Money Smart for Older Adults is designed to provide senior-borrowers with information and tips to help prevent common frauds, scams, and other types of elder financial exploitation. This is another way for concerned organizations to protect the over 50 million Americans aged 62 and up for financial exploitation both by persons they know and trust and by strangers.
5) HUD started its 7-day furlough on May 10, 2013 to reduce salaries and expenses by $66.6 billion. It is a part of the nationwide sequestration cuts that took effect in March 2013. This means that regular services by the agency may not be available in some pre-determined days. Senior-borrower should be aware of the furlough schedule to adjust their own schedule needing a call and/or visit to the agency.
6) A bill intended to amend reverse mortgage loan officer compensation prohibiting yield spread premiums (YSP) on reverse mortgage transactions were filed in New Hampshire in March 2013. YSP is the amount received by a broker after closing a higher interest loan. While this may sound beneficial to senior borrower, it may give way for an origination fee to be put in place anew.
7) According to Money Smart, prevalent reverse mortgage-based scams include contractor fraud and home improvement. Senior borrowers are advised to ask for identification or license from anyone claiming to be a representative of a company or government agency. They should also verify the identity prior payment. It is always wise to avoid signing anything before carefully reading it and doing business with anyone who utilizes door-to-door or phone to close deals.
8) The increase in ARMs is suspected to cause the reintroduction of origination and servicing fees in the industry. The only way to recapture lost loan revenues because of the market shift of 95 percent ARM products will be through adjustments to the originations fee. Senior-borrowers should be aware of this probable change as far as expenses in reverse mortgage processing are concerned.
9) Senior’s home equity increased by $4.4 billion from $45.1 billion to $49.5 billion in the first quarter of 2013. The increase shows that seniors will have more financial resources available to them during retirement and a reverse mortgage could help cushion retirement security for many senior homeowners.
10) CFPB launched a new web page for mortgage lenders including mortgage rules at a glance; small entity compliance guides; video overviews of rules; and quick reference charts that provide an easy way to see which rules are likely to apply to certain products or businesses.
Government and non-government organizations are implementing programs to improve the reverse mortgage industry. Though their initial approach of instituting changes targeted at both consumers and lenders has yet to be seen as effective, it has provided a framework for developing an industry-wide improvement. The next chapter of this series will discuss the documentation and processing of a reverse mortgage loan.
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