Analysts: FHA Will Avoid AARP Wrath and Keep Reverse Mortgages

The Federal Housing Administration will likely continue to offer reverse mortgages despite talk of program changes due to FHA’s financial position, writes a Sterne Agee research note published last week. 

“We do not believe Congress is going to let the [FHA] kill reverse mortgages and incur the rage of the AARP,” the report states in response to the announcement by FHA that it will make changes to its reverse mortgage program including putting a hold on the fixed-rate full-draw product. 

“It’s politics as usual in D.C.,” the analyst writes. “In a recent letter to Congress, the [FHA] agreed to let one aspect of the reverse-mortgage product go (the Standard mortgage). But the [FHA] did not put the second reverse- mortgage product, Saver, on the block. Under the Saver product, borrowers are likely to receive 10%-to-18% less in a loan. By lowering advance rates [meaning lower LTVs, or loan-to-value ratios], losses to HUD should be lower.”

The report covers an analysis of the impact of FHA’s announcement on Walter Investment Management Corp., which recently acquired reverse mortgage lender and servicer Reverse Mortgage Solutions.

Following the statement from FHA, Walter assured its investors that the acquisition was still profitable and that company executives did not foresee reverse mortgage volume taking a hit as a result of a shift away from the fixed rate lump sum product. 

Sterne Agee agreed the RMS business segment would not suffer under the changes. 

“Walter Investment is expected to make approximately 65 cents per share from its reverse-mortgage segment. We do not see this product going away, and our analytics suggest the company would make more money from the Saver product,” the analyst writes. “Also, industry sources tell us that reverse-mortgage originators have been building on a likely transition from “standard” to “saver” for months.”

View the research note.  

Written by Elizabeth Ecker

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