THE HECM INDUSTRY CHANGES
APRIL 25, 2018 BY PRMG MARKETING IN HECM
Paving the way for PRMG’s HECM Division & Building Credibility within the Industry.
Every salesperson and reverse mortgage professional must embrace the fact that the majority of consumers have an inherent distrust in sales people. With the recent HECM changes, we had to ask ourselves: will this boost the product’s legitimacy in the public eye? and more importantly, what does this mean for the industry as a whole? For PRMG, we couldn’t have picked a better time to get into this space, but we’ll touch on that in a bit…
The irony is that every major purchase—from buying a home, a car or investing in your retirement—entails working with a sales professional; the same applies to reverse mortgage professionals, all of which approach this distrustful and scared public. Further compounding this skepticism are products that carry unique features, features that are highly advantageous, leading many seniors to say, ’if it sounds too good to be true, it probably is’. The good news is that recent changes to the federally-insured reverse mortgage may have helped us close the credibility gap in the industry. Continued on Next Page
Before Financial Assessment, lending guidelines were very “loose” and overly generous, only considering the borrower’s age, equity, and property condition. It was essentially putting “a band-aid over a bullet hole”. The “old” guidelines could be compared to someone getting a car lease that added more free miles each year of the lease—all without having to prove your income or credit worthiness or even making a monthly payment. Would you be skeptical of something like that?
It can be argued that recent changes to the Home Equity Conversion mortgage, while challenging for lenders, may actually help improve the loan’s reception and close the credibility gap that’s been present in this industry for far too long. The Financial Assessment raised the bar of entry for senior homeowners, excluding homeowners with a questionable credit history and late tax and insurance payments. While the process can be burdensome for HECM applicants, its effect is often unspoken—homeowners often see increased legitimacy in a product that has standards to qualify. Case in point: homeowners with documented income and a respectable credit score instinctively avoided the questionable ‘no-doc’ subprime loans of old, though they may have been easier to obtain.
The latest round of HECM changes considerably slowed how quickly the HECM line of credit grows over time: it reduced the overall benefit (dollars and cents) to a borrower – leaving a greater portion of equity in the home, which helps preserve and maintain a favorable equity position over the life of the loan. In addition, the HECM’s credibility was further boosted by the removal of the 1.25% ongoing FHA insurance rate, being reduced to a more reasonable .5% rate which is less than the premiums paid by most traditional FHA mortgage borrowers today.
Recent reverse mortgage changes do reduce the number of qualified borrowers, but it also may increase the likelihood of skeptical homeowners taking the loan, homeowners who may have previously questioned the once liberal underwriting standards, generous benefits and ultimate access to future funds.
With these changes we’ve seen many in the industry become fearful, mainly due to the fact that the current and larger players in the space built their platforms off of the old guidelines, pricing, and yield spread premiums. With a change and reduction in each of those categories, one can imagine that any lender who has been in this space longer than 6 months is probably feeling the weight of these changes, to say the least.
PRMG’s HECM Division couldn’t have been started at a better time than now! Unlike those who have been in the space long enough to rely heavily on the previous guidelines, pricing, and Yield Spread Premiums, PRMG is building its HECM platform on the current guidelines, pricing, and yields. While others in the industry are looking for ways for “adjust”, PRMG is building. While others are looking for alternate solutions, PRMG is understanding how to work within the confines of the new guidelines, building our brand on the HECM of new without roots in the HECM of old. This puts us in a very peculiar, yet advantageous position to do this the right way during a time where product and industry credibility are at an all-time high. While the recent changes do reduce the number of qualified borrowers it also increases the likelihood of skeptical homeowners dipping their toe in a pond they tirelessly avoided, until now. When they do this, PRMG will be there to show these homeowners where the industry is going in terms of credibility, not where it was, building our name, our Brand, and our place in the HECM space, one borrower at a time.