Touting the inception of the government-insured Home Equity Conversion Mortgage, and later the fixed-rate HECM reverse mortgage, Inman news looks at the most recent fixed rate phenomenon: its critics.
“Five years ago, the industry rolled out a fixed-rate HECM. Now, it seems even that product has come under fire,” Inman columnist Tom Kelly writes, noting a recent Consumer Financial Protection Bureau study of the reverse mortgage industry and its products.
According to the Consumer Financial Protection Bureau (CFPB), half of the borrowers are under 70 and that increasingly many of them are using the loan proceeds to pay off traditional mortgages (via a fixed-rate HECM). The CFPB believes that if younger borrowers use most, if not all, of the loan proceeds to refinance out of a traditional mortgage, they may not have the financial means to deal with health-related issues later on in life.
Curiously, not one reverse mortgage borrower was interviewed in the CFPB study. Much of the information obtained for the study came from previously published materials and interviews with lenders, counselors and consumer advocates. One of the CFPB’s objectives was to identify and assess consumer protection concerns.
Fixed-rate HECMs render the most lump-sum funds available of a reverse mortgage product. All of the cash is taken out when the reverse mortgage closes. However, adjustable-rate reverse mortgages can be set up with a monthly draw, cash, a line of credit or a combination of all three. The balance of the line of credit increases over time, giving the senior more usable funds.
Given the economy, growing consumer demand has been for as much cash as soon as possible. Hence, some reverse mortgage companies have focused solely on the fixed-rated HECM — the reverse mortgage option offering the most cash at one time. In addition, more cash offers more commissions to loan officers.
“By offering only the fixed, how could the senior make an informed decision?” said Marty Taylor, president of Stay In-Home, a reverse mortgage lender. “No one product fits all the various needs of seniors. To serve the wide and varying needs of seniors, it’s prudent to offer all the various HECM products and be able to clearly explain them.”
Read the full discussion of fixed versus adjustable rate reverse mortgages on Inman News.
Written by Elizabeth Ecker
