In the wake changes in the marketplace and concerns about the rising number of nonperforming loans, the reverse mortgage industry is navigating through challenging waters, according to an article in Morningstar.

Retirement and aging columnist, Mark Miller's article, "How to Navigate the Changing Reverse Mortgage Market,"  presents an overview of the HECM reverse mortgage product and discusses some of challenges faced by the industry, including the tax and insurance defaults, exits by three large lenders and the transition to fixed rate products.  Generally, Miller goes into more detail than the typical HECM review article.

In describing the general product provisions, the article calls the standard HECM fees steep.  This is a common refrain and he does not compare the HECM costs to other FHA insured loans to provide any perspective as to why he considers them to be high.  However, he does note that the competitive environment has led to cost cutting by many lenders.

To make his point about fees, Miller uses the example of a $400,000 home value and a 72 year old borrower and states the total allowable fees would be $21,284. Based upon this scenario, standard fees on this home value would be $8,000 for the MIP, $6,000 for origination and approximately $3,000 in third-party fees, for a total of roughly $17,000.  However, if his scenario was calculated in a state that includes a mortgage or intangible tax, such as Florida, this could account for additional estimated amount.

Miller points to changes in the market place as creating additional challenges for borrowers and the industry.  The exit by Fannie from the reverse mortgage market and entrance by Ginnie Mae drove the demand for fixed rate products.  The focus on the full draw product, with demand growing from a 3% market share to 70% in 2009, has put more pressure on the performance of the loans has loan balances accrue interest more rapidly.  He indicates that some experts do not see how a full draw product is appropriate for the vast majority of borrowers.  National Council of Aging Vice President Barbara Stucki is quoted saying the product was designed to allow borrowers to draw on their equity in small amounts over time to raise their standard of living.  This led to a much slower utilization of available equity compared to the fixed full draw loans.

The increasing concerns related to falling home values and borrowers falling into default status for non-payment of insurance and taxes have created additional challenges for lenders and servicers.  Miler states that before the housing crisis, servicers were willing to pay unpaid housing expenses and add the additional amount to the loans, however, falling home prices have made that more problematic.  Quoting Peter Bell, President of NRMLA, he acknowledges that servicers have been working with delinquent borrowers to resolve unpaid expenses.  The issue, he says was a factor leading to the exits of Wells Fargo and probably also contributed to exits by Bank of America and Financial Freedom from the reverse mortgage industry.

Lastly, Miller points to uncertainty related to AARP's lawsuits against the industry focused on the implementation of rules related to heirs and non-borrowing spouses rights related to HECM loans.

Although the article focuses on perceived negative issues surrounding the reverse mortgage industry, and doesn't live up to the title to provide any recommendations about navigating the marketplace, he provides reasonable details about the various issues.  In some cases, he could have benefited from including a differing perspective, especially in order to provide a more rounded discussion from a consumer standpoint.