PERSON OF THE WEEK: The reverse mortgage sector has been receiving a double whammy from both the continuing tumult that has rocked the overall housing finance industry and the unique problems that still bedevil this distinctive niche. To consider where the sector is today, MortgageOrb spoke with Jeff Taylor, president of Greensboro, N.C.-based Wendover Consulting Inc. and founding chairman of the National Reverse Mortgage Lenders Association (NRMLA).
Q: What do you see as the near-term and long-term future of the reverse mortgage sector?
Taylor: Overall, it is positive, although there are some individual challenges, such as the health of the Federal Housing Administration's (FHA) mortgage insurance premium fund, home-price appreciation projections and tax and insurance defaults. In addition, a more diversified secondary market and additional investor interest would further the reverse-mortgage product's acceptance.
Q: What are the secondary market opportunities for reverse mortgages?
Taylor: Currently, the only secondary market execution is through the securitization pooling of home equity conversion mortgages (HECMs) into Ginnie Mae's HMBS bonds. As the program gains additional acceptance, however, more private investors will take a closer look.
Q: How are changes in regulations and federal involvement in the overall housing market impacting reverse-mortgage lenders?
Taylor: All mortgage products have been impacted by new and increased state and federal legislation, and the reverse sector is no different. Licensing, appraisal standards, revised disclosures and loan servicing standards have and will continue to impact reverse-mortgage lenders. But these additional steps will further stabilize the overall future of the reverse mortgage lending industry.
Q: Last year, several major lenders withdrew from the reverse-mortgage sector. Should that be seen as a warning or an opportunity to other lenders?
Taylor: As an opportunity! Each of the large lenders that left the space had its own reasons for doing so. Market dynamics are changing the landscape of reverse players, and a new lender base providing this HECM product is evolving.Â
Q: Reverse mortgages have been the subject of negative publicity over the past year, most notably in an AARP-led lawsuit against the U.S. Department of Housing and Urban Development (HUD) regarding its HECM policies. How do you address concerns that seniors may have that reverse mortgages can be dangerous products?Â
Taylor: Since their inception nearly a quarter-century ago, reverse mortgages have been, far and away, the most highly regulated home finance products on the market. Indeed, the primary reverse mortgage program available during that time – the FHA HECM – is a federally insured program that includes strict controls – specifically, upfront mandatory counseling, required disclosures and capped fees.
Over the years, NRMLA has worked closely with AARP and HUD. While I cannot comment on any litigation that may be ongoing, it is my personal view that the many protections provided to seniors make reverse mortgages a valuable program for many of them.
Q: Last October, the Consumer Financial Protection Bureau (CFPB) established its Office of Older Americans. Has the CFPB expressed any official opinion – let alone a concern – regarding reverse mortgages? And considering the impact the CFPB is having on mortgage banking, should the reverse-mortgage sector be concerned about the new agency?Â
Taylor: The CFPB is mandated to conduct a study under the Dodd-Frank Act. As a sector that is already historically well regulated, I would expect the new bureau to agree that reverse mortgages essentially can be a sound, viable financial tool for seniors. This is especially so with the newest product, called HECM Saver, which is designed for seniors who do not have an outstanding (first) mortgage, and who have no need to eliminate a monthly mortgage payment (with a reverse mortgage). So, they would not need to withdraw the full amount available to them. HUD has done regular studies on the benefits of a reverse mortgage to seniors – and the AARP has, too.
A key finding among seniors responding consistently has been that they want to age in place and remain as independent as possible in their familiar home surroundings.
Q: Are reverse mortgages popular in other countries? If so, what are the other global leaders in this product field? And if not, why not?
Taylor: Some other countries have dabbled in it, but I think Canada's Home Income Plan has been the most successful, outside the U.S. I have monitored their product development closely, and it has some interesting features. Of course, the country's population is only 10% the size of ours, so it's a much smaller program.
The Canadians also have no HUD-like involvement and little or no competition among lenders. Consumers work directly with banks, which provide the product to seniors. They do not have problems with tax and insurance defaults, mostly because Canadian seniors can access about 15% less equity than their U.S. counterparts. Very few take the maximum amounts up-front.
Other countries – including England, Australia, India, Barbados and Poland – also have ongoing reverse mortgage programs or have explored them, but the terms vary in each one.
