Tag Archives: National Reverse Mortgage Lenders Association

Senior Home Equity Rises to Record-High $3.34 Trillion in Q2

16 Oct

October 15th, 2013  |  from Reverse Mortgage Daily

Senior home equity rose to a record-high $3.34 trillion during the second quarter of 2013, according to the latest Reverse Mortgage Market Index (RMMI) from the National Reverse Mortgage Lenders Association (NRMLA) and RiskSpan.

The RMMI rose 3.1% during the second quarter to a level of 160.1, which NRMLA/RiskSpan notes as the highest level since the fourth quarter of 2008.

The increase of $101 billion during the period, driven by an estimated $98 billion increase in senior housing and a decline in mortgage debt held by seniors, was also the highest quarterly gain since 2005.

During the first quarter, senior home equity rose an estimated $50 billion. The second quarter of 2013 now marks the fifth consecutive quarter in which the RMMI has risen.

Despite the record-high increase in seniors’ home equity reported during the quarter, it remains below prior peak levels.

The $3.34 trillion estimated value of home equity by seniors during the second quarter is still 17% below its peak level of $4 trillion recorded during the fourth quarter of 2006, according to the RMMI.

The RMMI has tracked the reverse mortgage market since 2000 by analyzing and reporting trends in senior home values and home equity levels.

The senior housing value estimate is based on the Federal Housing Finance Agency’s second quarter of 2013 all-transactions indices, which saw housing values increase 73% of the 412 metropolitan statistical areas covered by RiskSpan.

From the Wall Street Journal this Sunday

28 Aug

Tighter Rules for Reverse Mortgages

Fewer borrowers will qualify and borrowing limits will drop.

 

    By

  • ANNE TERGESEN

The rules governing reverse mortgages are about to change, which could mean less money for borrowers. But it also may help reduce the program’s high default rate.

Congress recently gave the Federal Housing Administration, which insures virtually all reverse mortgages, the authority to make sweeping changes to the federal program for older homeowners. Once the new rules go into effect—some perhaps as soon as Oct. 1—fewer homeowners will qualify for these loans, and the maximum amount they will be able to borrow will decline.

Those who submit an application, complete a reverse-mortgage counseling program, and receive a case number by Oct. 1 will be able to qualify for the higher maximum amounts under the current rules.

Reverse mortgages allow people ages 62 and older to convert home equity into cash. The bank then pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is due, with interest, when the borrower dies, moves or sells the house.

Regulators plan to merge the two types of reverse mortgages on the market today: the “standard” loan, which currently allows borrowers to tap from 56% to 75% of a home’s appraised value, depending on their age, and the “saver” loan, which currently pays from 4 to 16 percentage points less. The agency has yet to announce the new limit.

Going forward, most homeowners will be able to borrow less than they currently can with a “standard,” but more than they can with a “saver,” says Peter Bell, president of the National Reverse Mortgage Lenders Association. Regulators also plan to cap the amount many borrowers can tap during a loan’s first year.

Consider a homeowner with a $300,000 property who is eligible to borrow $175,000. Assuming FHA enacts a 60% first-year cap, the borrower will be able to take an upfront payment of up to 60% of the $175,000 loan, or $105,000. Because fixed-rate reverse mortgages currently require borrowers to take everything at once, only those opting for variable-rate loans will have access in later years to the balance (of $70,000 in the above example).

Those who need more than 60% of the loan upfront to pay off a regular mortgage—a requirement—can immediately take the amount they need, up to the entire proceeds ($175,000 in the above example). But such borrowers will have to pay a higher upfront fee for the loan, says Mr. Bell. (FHA has yet to determine the exact amount.)

The changes are designed to curtail the popularity of reverse mortgages that issue large lump-sum payments, a breed that has helped fuel a rise in defaults to nearly 10% of loans outstanding. Defaults occur when homeowners fail to pay property taxes and homeowners insurance.

Regulators also plan to require lenders for the first time to assess borrowers’ ability to cover property tax and homeowners insurance bills, says Mr. Bell. Lenders may require some borrowers to set aside money to cover future property taxes and insurance.

Reverse Mortgage Financial Assessment Guidance Proposed

15 May

In the wake of regulatory issues involving the HECM reverse mortgage (Home Equity Conversion Mortgage) the National Reverse Mortgage Lenders Association proposed guidance for the Department of Housing and Urban Development toward a financial assessment of reverse mortgage borrowers.

In order to determine whether borrowers are at risk for falling into default on reverse mortgage loans prior to their taking one out, NRMLA’s policy committee studied borrower data past and present including credit profiles and tax and insurance histories.

“The program is going to require a bit of retooling in response to the lessons that have been learned, to make the product more specific to consumers’ needs as well as their capacity to have a successful experience,” said Peter Bell, NRMLA president and CEO before attendees of NRMLA’s west coast regional conference in Irvine, California this week.

In developing the recommendations, NRMLA considered the goal of making the product more sustainable and better equipped to serve its intended purpose for borrowers to fund longevity rather than the most recent primary use of drawing all proceeds at once.

“Our recommendations on the financial assessment and how that should look is principally in order to reduce the tax and insurance delinquency rate,” said Colin Cushman, President and CEO of Generation Mortgage. “We hope FHA takes it on as at least something to think through.”

The NRMLA committee found the complexity of certain financial scenarios surrounding borrower defaults required a comprehensive solution involving financial assessment as well as principal limit utilization to test whether the applicant will be able to meet their obligations over the life of the loan.

Capacity and willingness to pay ongoing property charges are considered in the proposal, which involves a test for each. The capacity test looks at income and capacity to pay property taxes and insurance charges while the willingness test looks at whether historically borrowers have demonstrated they are willing to keep those payments current.

Additional requirements would apply to higher risk applicants who do not pass both tests, in order to offset that risk. Those might include reduction of principal limit factors, raising the mortgage insurance premium or requiring a tax and insurance escrow.

FHA Insurance Fund May Need Bailout

12 Apr
Presidential Budget Projects Insurance Fund May Need Treasury Support
from the News for the Week of 4.11.2013 NRMLA Newsletter

President Obama’s fiscal 2014 budget, as calculated by the Office of Management and Budget, projects an infusion of $943 million may be required for the MMI Fund Capital Reserve account for the new fiscal year beginning October 2, 2013 to cover projected 30-year losses.  Budget details show positive cash flow of about $4.3 billion for the forward mortgage portion of the fund, but $5.2 billion negative cash flow for reverse mortgage loans.

Since at the end of a loan (or “Maturation Event”) the borrower is only responsible for the appraised value of the home or sales price, the insurance fund covers any remaining balances. The Capital Reserve fund is a projection of the amount of money that will be needed to cover these expenses to FHA.

By statute, the MMI must operate net neutral on an annual basis. It is not supposed to depend on what is commonly called an appropriation, but which in the current verbal war zone are being referred to more frequently as “costs to taxpayers.”

This is just a proposed budget that still needs to be negotiated and passed by Congress. Though no federal budget has made its way out of Congress in the past few years, there seems to be more inertia to pass one this year. With recent years’ books of HECM business looking much better due to increases in insurance premiums and the creation of the HECM Saver, and future effects expected from the recent moratorium on the fixed rate HECM Standard, and, more significantly, increased home values, it is possible that over the time the budget is negotiated, the HECM picture will turn rosier.

At the same time, HUD is looking for the legislative authority to make additional alterations in the HECM program, so that it can make its own adjustments via Mortgagee Letter when a projection like this occurs. In its 2014 Budget Report, “Housing and Communities Built to Last,”  the narrative specifically pinpoints such changes as “instituting a required financial assessment and establishing mandatory escrow amounts.”

SENIOR HOME EQUITY INCREASES FOR THIRD STRAIGHT QUARTER

29 Mar

From a press release by NRMLA on March 20, 2013:

“WASHINGTON, D.C. – Americans 62-years old and older now have more equity in their homes than at any time since mid-2009, according to data released today by the National Reverse Mortgage Lenders Association.
The new information comes from the NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI), which analyzes trends in the home values, home equity, and mortgage debt of homeowners 62 and older. The RMMI is updated quarterly and tracks back to the start of 2000.
“The positive trends supported by today’s RMMI are good news for senior homeowners, and they contain positive signs for the American economy and housing market,” said Peter Bell, president of the National Reverse Mortgage Lenders Association.
“Thankfully, the recovering real estate market continues to grow seniors’ home equity, creating a valuable resource for them. Tapping into that equity is one option to help fund living expenses, home maintenance costs, or health care needs in retirement,” Bell said. “With proper planning, seniors can use their home equity to pay off a forward mortgage and lower their monthly expenses, or they can use it for the financial flexibility needed to hold onto other assets during a down market.”
In the fourth quarter of 2012, the RMMI reached its highest level (152.59) since the second quarter of 2009. After falling to start 2012, the RMMI increased slightly in the second quarter before showing significant growth in the third and fourth quarters.
“In the second half of last year, the RMMI had its strongest two quarters of growth since early 2006,” said Allen Jones, managing director of RiskSpan, the analytics firm which designed and manages the RMMI. “Senior home equity increased by $50 billion between the third and fourth quarters of 2012, driven largely by the increase in the aggregate value of seniors’ homes.”
Over the last 12 months, the total home equity of homeowners 62 and older increased by $117 billion (+3.8 percent), while their home values increased by $97 billion (+2.3 percent) and their mortgage debt declined by $20 billion (-1.8 percent).”

New York Regional NRMLA Conference Offers Useful Information – Part FOUR – NRMLA Research Forum

25 Mar

The very last session at last week’s Regional Conference was an overview of recent research.

Michael Eriksen of the University of Georgia presented “Aging in Place, Access to Affordable Housing and the Health and Living Arrangements of Older Americans.”   With 75 million baby boomers on the verge of retirement, this is an important topic.  There is a clear desire to age in place.  In fact, 80% of older households were found to be owner-occupied. While homeownership rates dropped off in the mid-2000’s for other age groups, 65 and older homeownership continued and continues to rise.

Findings from this study also show that 1/3 of older homeowners have experienced a serious fall, fall rates are on the rise, but only 16% live in handicapped-modified homes.  Modifications are needed, but can be costly, leading to the conclusion that home equity may be the best way to pay for them.

Cindy Hounsell of the Women’s Institute for a Secure Retirement spoke about the need to inform women, especially, about financial options available in retirement.  At age 65 and over, there ate 6 million more women than men in the United States, and 68% of the 85 and older population are women.  Women’s issues to be considered are that they earn less therefore have less in savings and pensions, but live longer and often live alone.  Women need to realize that their biggest risk is outliving their retirement savings.  More women than men have consistently taken out reverse mortgages.

Ohio State University’s Stephanie Moulton presented research on “Aging in Place: Analyzing the Use of Reverse Mortgages to Preserve Independent Living.”  The underlying assumption is that reverse mortgages provide greater financial security which, combined with the ability to stay in one’s own home, may lead to independence and overall well-being.

Like other speakers in the conference, she pointed out that the pool of potential eligible HECM borrowers is growing.   Additionally, the age of the average HECM borrower is getting younger and more HECM borrowers have more mortgage debt.

Clients counseled for reverse mortgages reported that they used reverse mortgage funds mainly to increase monthly income and pay off existing mortgage debt.

 

New York Regional NRMLA Conference Offers Useful Information – Part THREE – The Technical Default Process

25 Mar

Day Two of the NRMLA conference provided a useful session by Lorraine Geraci on the art of communication with seniors, with a discussion on the physical aspects of aging and a caution to avoid stereotyping older people.

The second workshop of the day gave a detailed look at technical default presented by representatives of HUD, RMS reverse mortgage servicers, and CredAbility reverse mortgage counseling agency.

Taxes and insurance payments made by reverse mortgage borrowers are tracked by the servicer through a third party.  If they are in arrears, the borrower is contacted within 30 days to discuss cure options:  the overdrawn amount can be paid back on a payment plan, the entire loan can be repaid, or the borrower can execute a deed-in-lieu of foreclosure.

HUD has a program to provide default counseling.  Upon review of the borrower’s budget, a deficit is usually found which the counselor attempts to help rectify.  Borrowers are referred to agencies which provide benefits and are encouraged to apply for available help such as SNAP (food stamps), free cell phones, and home sharing options.  The borrower can usually find $200 in savings in this way.

Many seniors pride themselves in their self sufficiency and are reluctant to participate in public assistance until long after the point at which they qualified.  It often takes three or more sessions with a counselor to achieve maximum improvement.  If money cannot be found through savings in the budget, counselors then discuss asking children or grandchildren for help in meeting budget deficits or in moving to alternative housing.

Loan originators are encouraged to provide information at the time of the initial application about tax reductions, etc, that may be available to the senior borrower.

Of the approximately 1400 default counseling sessions done last year, half were able to successfully get into a repayment plan.

Case Study:

A pilot program in the Philadelphia area has been instituted to help guard against the danger of HECM foreclosure. They began with date they had:  borrowers whose loans were already “due and payable”.  Contact was attempted, first with a telephone call, then a letter, and finally a visit to the property.  A counselor assists with enrollment in benefits programs and all efforts are made to keep the borrower in their home.

The help of HECM servicers was enlisted to obtain data on defaulted borrowers not yet due and payable.  These seniors are enrolled in benefit programs, new less-expensive homeowners’ insurance is put in place, live-in family members are asked to commit money to pay a part of expenses, TV services are bundled into more economical packages.  Perhaps most importantly, the repayment plans can be extended from one to two years, offering flexibility to meet goals more successfully.

Mark Helm from RMS servicing said that 6.7% of their HECM portfolio is currently in tax and insurance default.  75% of these borrowers began with a “constructive default”: they had been in arrears on their taxes and had let insurance lapse before the beginning of the loan.  The majority are insurance defaults.  34% of borrowers in default are on a payment plan now, and if they fail to keep up repayments for 120 days, they are given a second chance.  Of the borrowers on a payment plan, 77% succeed in bringing their account up-to-date.

Of all the defaulted borrowers that are contacted, a number are non-responsive to letters and calls, but an inspection visit can often lead a borrower to begin repayment.  Sometimes an inspection may find the property vacant, in which case a short sale is attempted before foreclosure.  Multiple extensions may be granted.  The usual time frame from “due and payable” to foreclosure is 6 months, with 90-day extensions granted.

The recent rise in home values may offer a chance for borrowers to do a HECM-to-HECM refinance to boost loan proceeds.  Although national home values are reported to be up 10%, HECM REO values are only up 3% due to maintenance issues, making this potential option less viable for some.