While changes to the Federal Housing Administration’s reverse mortgage program are, by definition, going to alter the way things work in the reverse mortgage space, lenders are largely not foreseeing a major impact on the number of loans in the marketplace.
With the current options that will remain available after the April 1 implementation date for a freeze on the fixed rate standard reverse mortgage, borrowers may not have the same option to withdraw the full amount of funds upfront at a fixed rate under the standard program, but they will likely be able to benefit from the remaining products, lenders say.
“We don’t believe its going to have a big impact on our business from a unit basis,” says Gregg Smith, president of One Reverse Mortgage. “It will likely have a small impact on our UPB volume level. There will be a fair amount that will fall into Standard or Saver ARM and can then draw down on that line.”
Industry estimates currently place the new product balance around closer to a 50% Saver-50% Standard split, with the Saver increasing market share substantially. While it allows the borrower a smaller amount of funds, the low upfront insurance premium will serve as a point of appeal.
“I don’t see a meaningful impact to volume based on this shifting of the origination mix,” says Darren Stumberger, managing director for Knight Capital Group.
Adapting to the change will mean a reception to that new product mix.
“This is exactly what was expected,” one industry veteran told RMD. “The fixed rate saver will be a more important product going forward.”
Historically, the Saver has comprised just a small portion of the total loans and nearly 90% of those Savers were adjustable rate loans. Without the fixed rate standard option, many will opt for the fixed rate saver instead.
“The PLF will be approximately 20% lower and there will be virtually no mortgage insurance premium,” one originator explained. “In short, we now have a fixed loan that has practically no upfront MIP and it gives borrowers less than the old fixed.”
While some have anticipated a drop in marketing dollars due to the lower dollar volume based on a comparable number of loans, others are honing in on the marketing and sales process and working with borrowers to educate them about those products that do remain.
“The glass half full perspective is that there will be a clear product difference for the client to consider,” Smith says. “With the Standard ARM and Saver fixed, it’s clear there are pros and cons on both. It’s a much more consultative process than it has been in the past year.”
Further, the changes will have a long term benefit, pending additional modifications expected later this year.
“Everyone wants the market to be long-term sustainable, Stumberger says. “If this change alleviates some of the perceived pressure while Financial Assessment and a more thoughtful means to determine suitability is being worked on, it’s OK. I think most market participants would agree a more thorough approach is needed and it’s in everyone’s interest to allow this market to grow in a sustainable fashion.”
Written by Elizabeth Ecker
