HECM Refinances Difficult in Current Economic Climate

While HECM refinances played a big role in reverse mortgage endorsement volume for FY 2009, Generation Mortgage Chairman Jeff Lewis notes that the current economic climate has stepped in to change that.

For a HECM refinance to be possible, either the value of the home has to rise or the person has to get a lot older.  And even if the person might get more from being older, the house would still need to be at least back where it was when the reverse mortgage was taken out.  “Given how difficult it is in this appraisal context, [it’s] hard to think of many cases when a refinance would be possible, “ said Lewis in a conversation with RMD.

During FY 2009, HECM refinances totaled 8,985 and were up 102.6% compared to FY 2008.  According to the latest FHA Outlook Report, HUD is projecting 7,268 HECM refi’s in FY 2010.

In addition, Lewis notes that the drop in principal limit factors (PLF) has a negative effect on the amount of money a borrower would be able to receive from refinancing.

“At the end of the day if a person needs money and they can do it, it’s hard for me to see a lot of cases when it would not be in their best interest,” says Lewis.  Nonetheless, given the current climate, “I don’t think it’s a huge issue for our industry,” he adds.

Written by Reva Minkoff

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