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HECM Saver: Enough To Save the Reverse Mortgage Industry From Imploding?
While the HECM reverse mortgage industry is banking on the HECM saver, a reverse mortgage program with lower costs and less benefits, some wonder whether this is a case of "too little too late".
Let me explain....
1. The HECM program was thrown out of the General Insurance Fund and placed into the Mutual Mortgage Insurance Fund, pursuant to the Housing & Economic Recovery Act. This means funded benefit amounts will continue to be at risk. This change while incorporated as a way to keep the program strong is really precluding more and more of our elders from benefiting from the program.
2. Seniors living in condominium projects are having a difficult time accessing the program after the shift away from the use of the condo questionnaire. All condominium projects now have to be approved Ab Initio. Very strict limits must be followed without deviation regarding reserve funds, pending litigation and assessment levies. This means that many projects will not get approved and many seniors, who have naturally downsized, will be denied access to the program.
3. The pending mortgagee letter regarding co-op units most likely will be inscrutable and will similarly have the same harsh results as noted in number 2 above.
4. Congress has demonstrated a bias against the program by refusing to fund the requested subsidies since the program was moved to the MMI fund. Congress has in essence reprised the same message contained in the famous headline printed on the front page of the New York Daily News in its October 30th, 1975 edition. Just substitute the word “seniors” for “city”.
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5. The important use of the power of attorney has become a pejorative as underwriters, under threat of not having the loan insured, are substituting their opinion as to the validity of a properly executed power under the guidance of a lawyer. Many attorneys feel that this practice violates fair lending laws.
6. While the SAFE Act was suppose to make the mortgage industry safer for the consumer, its terms illustrated the lobbying power of the big banks. It created an uneven playing field whereby originators no longer felt that it was in their interest to work for the “small shop” (bankers and brokers) when they could work for the big banks and avoid the onerous requirements that the small shop originators were subject to. This caused much havoc within the loan originating community. Reverse mortgage originators, who had no experience originating forward mortgages still had to pass two difficult exams on state and federal law that only pertained to forward mortgage loans. This is like asking a podiatrist to pass an exam that a neurosurgeon had to take. Many reverse mortgage originators simply left the industry.
7. When HUD decided that it no longer wished to be in the correspondent approval business, it ceded the approval process to the big banks. Previously I have reported on this. This procedure is a slap at the SAFE Act and is without statutory authority. The industry, by its deafening silence, is complicit in this unlawful activity.
8. The appraisal independence program clearly has winners and losers. The winners are the appraisal management companies, which are owned by many of the big depository institutions. The losers are the seniors. The appraisals are done not by the most qualified appraisers but by those appraisers that agree to work for the lowest split. The work is not as thorough, as volume is more important that quality.
9. With the arrival of the FIT tool and Benefits-Checkup tool, untrained counselors (no social work degree, no financial planning degree, no physical therapy degree and no law degree) will be talking about areas they have no business talking to seniors about. The counseling process use to be a means to an end. Now it is a means and an end. It seems like getting the reverse mortgage is just an after-thought. (Potential borrowers will be quizzed to determine whether they independently possess enough knowledge to obtain a counseling certificate. I maintain that there will be competent borrowers, who have certain cognitive impairment that will not be able to answer the questions yet have the full support of the family to move forward. What will happen to these individuals?). This industry cannot become a herd of fawning parasites and sycophants who favor anything the government dishes out. Let’s be clear here. We all want seniors to be protected. But Bubble wrapping them in layers and layers of new protocols, whether or not they want additional information, is an insult to their individual integrity and will have a chilling effect on the program. Creating one class for the many different types of individuals who seek the benefits of the reverse mortgage makes the counseling function more difficult than it need be.
10. When the GFE underwent a facelift, liposuction and tummy tuck it became the holy grail of origination documents. Make a mistake and a company may not get paid. (This is the same kind of fear that underwriters are under whenever a power of attorney is used. Make a mistake by accepting this form and we will not insure this loan). Not one borrower or one attorney I have met has stated that the new GFE is an improvement. In fact, it is referred to in a most pejorative fashion. It adds another layer of mystery to an already overwhelming volume of duplicative sets of documents.
It is critical that the HECM program become mainstream. The window of opportunity is closing fast. Look, after 21 years, the industry is still plagued by those pesky indelible groups of misconceptions. It is up to the industry to really partner with government to set the right priorities; to fix what needs to be fixed. The fundamental issue is that all sides have to determine that there is in fact a problem. Either way AARP will have the answer to the title of their seminal survey: Reverse Mortgages- Niche Product or Mainstream Solution. It is time to make some hard choices.
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