Skip to main content

HUD Policy Could Be Killing Reverse Mortgages

Keith Griffin
Apr 28, 2020
Housing and Urban Development headquarters

Has the Department of Housing and Urban Development put such stringent requirements on reverse mortgages that HUD may ultimately kill them? That’s the theory of a Forbes columnist who previously worked for the Federal Reserve Bank in New York as chief economist.
 
Jack Guttentag writes in his opinion column that HUD made errors in making home equity conversion mortgages, commonly known as reverse mortgages, standalone products instead of part of a larger financial portfolio. HUD, through the Federal Housing Authority, bars lenders from “involvement with any other financial or insurance product.” This rule stemmed from some abusive transactions early in the history of the program where HECMs were combined with annuities in order to generate two commissions.
 
Drops in real estate values are hurting retirees, Guttentag said. Current HECM losses are much higher than they would be if HECMs were integrated into retirement plans.
 
The mortality-sharing feature of annuities allows retirees taking a HECM to draw larger amounts over their lifetimes if they combine it properly with an annuity, said Guttentag. This would be particularly valuable for house-rich/cash/poor retirees who have negligible financial assets.
 
In the column, Guttentag adds homeowners with significant amounts of financial assets can safely increase the rate of return on assets by integrating asset management with a HECM and an annuity. According to Guttentag, the reverse mortgage client pool has been heavily weighted by borrowers with low credit scores, many in desperate financial condition, who turn to a HECM as their last resort. Many such borrowers fail to pay their property taxes and maintain their properties in good condition.
 
Reverse mortgages that are integrated with asset management and annuities into comprehensive retirement plans are likely to draw borrowers with better payment habits, said Guttentag. Further, a borrower who obtains a rising payment for life is better positioned to meet home ownership charges than those who exhaust their HECM borrowing capacity in the first few years.

 
 
Published
Apr 28, 2020
More from
Reverse
HECM Endorsements Plummet More Than 14 Percent

Home equity conversion mortgage endorsements plummeted 14.3% in August 2021 to 3,679 loans.

Reverse
Sep 14, 2021
Reverse Mortgages Aren't Expanding Into Broader Mortgage Business

The reverse mortgage sector has remained strong accounting for more than 4,000 loans a month, according to Reverse Mortgage Daily, however, growing the business further has been on the back burner.

Reverse
Jul 28, 2021
FHA Adds COVID-19 Recovery Options For Forward And Reverse Borrowers

The Federal Housing Administration announced additional COVID-19 recovery options to help both forward and reverse homeowners who are facing hardships as a result of the pandemic.

FHA
Jul 26, 2021
RMF Revamps Its Borrower Qualification Process To Increase Efficiency

Reverse Mortgage Funding, LLC (RMF) is taking a new approach to the borrower qualification process for those seeking a reverse mortgage. The process was created to drive efficiency during the approval process and increase reverse mortgage market growth.

Reverse
Jul 20, 2021
Reverse Mortgage Endorsements Slide By More Than 4 Percent In June

Reverse mortgage endorsements decline by 4.4% to 4,160 loans, increasing the streak of more than 4,000 loans per month, according to Reverse Mortgage Daily.

Reverse
Jul 06, 2021
Liberty Reverse Mortgage Becomes Full Service Reverse Lender Following RMS Acquisition

Last week Ocwen Financial Services announced the acquisition of Reverse Mortgage Solutions. In a recent interview with Reverse Mortgage Daily, Mike Kent shared how the acquisition will affect the company.

Reverse
Jun 22, 2021