Why can’t I convince my 22-year-old son to trade his aspirations of becoming a doctor for a life in the mortgage industry?
Let’s see, he won’t have to take the MCAT, he can avoid four years of tough schooling and another four of training, he can probably make more money and make that money faster, and there’s no need to wake up at 2 a.m.; 9 to 5 will do just fine.
Yes, the mortgage industry can be lucrative and rewarding, but as we have seen over the last couple of weeks, the government can tweak something tomorrow that changes your business forever. And yet, how are we, as lifelong industry professionals, supposed to plan for the future when the visibility ahead resembles a drive along San Francisco’s coast on a foggy day?
If I were a 22-year-old man, I’m not sure I would sign up for such instability, unpredictability and an industry weighed heavier each day with regulation. But for those of us who find leaving the industry and applying to medical school a ridiculous proposition, we must hone our abilities of adaptation and constantly change our lives and business plans to accommodate our work environment. I think it is safe to say that the biggest change in 2013 will be the suspension of the full-draw, fixed-rate reverse mortgage. Some might say this is an unnecessary move that was an overreaction to an analysis of a book of business that occurred in the midst of the Great Recession. But perhaps arguing whether or not it was a smart move is now a moot point.
The full-draw, fixed-rate HECM has been the most popular product since it was introduced in 2008 and its absence is no small matter for the reverse mortgage industry. I don’t believe it is necessarily all bad news though; I’m sure that, like our business in San Diego, reverse mortgage volume spiked for many of you whose clients realized the urgency and decided to proceed with their HECM before the changes took place. This unusually large pipeline will carry many originators well into 2013, but long-term changes seem destined to increase the popularity of the HECM Saver, which is the only fixed-rate option now available. Also, whenever a buzz such as this surrounds the reverse mortgage (and isn’t associated with bad press), exposure will increase. Any marketing agency will tell you that is a good thing for your product.
Another interesting change in store for the HECM product is the introduction of a ban on non-borrowing spouses. While not all lenders have issued a ban on these borrowers, it does seem like the industry is trending in this direction in reaction to a lawsuit by AARP. At first it seems quite easy to deduce that this could be detrimental to the 5 to 10 percent of clients that fit this category, but in the long run it’s safe to say that this move should only help the reverse mortgage product. Today, one of the most common arguments against reverse mortgages revolves around unethical lenders that do not inform clients about the situation facing a non-borrowing spouse should the borrowing spouse pass. These horror stories should be completely eliminated with this ban, thus making the HECM product appear much safer to the average American.
Doctors make the big bucks because they dedicate the majority of their youth to education and they constantly work long hours; laborers make their money by sweating it out every day; and loan originators make their living by subjecting themselves to a lifestyle of ever-changing regulations, interest rates and programs. Change is simply a major part of this industry and those who accept this and can quickly adapt, evolve and improve will be the most successful at the end of the day. Whether this suspension of the full-draw, fixed-rate reverse mortgage is permanent or just a short-term change isn’t known to anyone yet, but I don’t believe HECM volume should drop significantly due to these changes.
HECM production peaked back in 2009 with more than 114,000 HECMs closed that year. Since then, volume has decreased, largely due to the housing market and the lack of equity among seniors. But with the housing market’s slow traction it seems as though equity issues will only improve in the upcoming years. In fact, according to the Reverse Mortgage Market Index, there has already been a 2.4 percent rise in senior home equity, with senior equity at its highest levels since 2009. With an increase in senior equity by more than $74 billion and expectations of further home appreciation, I believe the arrow is actually pointed up for HECM volume. Yes, the full-draw, fixed-rate HECM is no longer an option, but the newer HECM Saver is an extremely viable replacement. And let’s not forget that for those seniors who don’t have enough equity, the adjustable-rate standard Libor is still available. Since the HECM product is still primarily a needs-based product, many seniors with less equity who wished they could get the standard full-draw, fixed-rate HECM will most likely be glad to take the adjustable-rate option if that is the only remaining program.
NRMLA concluded its December bulletin with a comparison of the principal amount of a full-draw, fixed-rate HECM back in 2009 and a HECM Saver today. Because of today’s low interest rates, considering fees and MIP, there are
actually cases in which a HECM Saver fixed-rate today would net a higher principal amount than a full-draw, fixed-rate back in 2009. “For a home with a $550,000 value, a HECM Standard adjustable rate would have yielded a net principal amount of $282,700 in October of 2009. A HECM Saver fixed-rate today would yield a net principal amount of $298,595 on that same home.” So, what does this all mean?
There’s no need to apply to medical school.
If the principal limit isn’t changing much at all (and might even be going up in some situations) compared to 2009, there is no reason why we cannot attain and even surpass the production levels we saw during the peak of the HECM. I believe a combination of instability within the U.S. economy, a slowly improving housing market, low interest rates
and increasing positive exposure of the reverse mortgage can all add up to a very busy 2013.
Bottom line: We are heavily invested in an extremely volatile industry, an industry dictated by rates, regulation and legislation. And while I’m excited for my son’s future career in medicine, I would have much rather groomed him to be the next FHA commissioner.