Archive for January, 2014

Bogus HECMs Imperil Reforms

Thursday, January 30th, 2014
      The old industry-negating game of running end-runs around regulations for short-term profit is shamefully beginning anew in the reverse mortgage industry, and HUD should stop it.
     On this blog last month, I drew readers attention to two “new products” from two major lenders. Just days ago, one of the lenders, Live Well Financial, announced another “new product” it is calling HECM “Fixed Fourtune.”
    Claiming to be fully compliant with FHA new HECM payout rules and suggesting FHA’s cooperation in concocting these bogus HECMs, these lenders (and others that may be compelled by business-survival-imperative to follow them) are shamelessly and irresponsibly trying to game the new payout rules. The new rules were designed to stretch HECM payouts over retirement years  that may be longer than usual for elders with home equity.
     But the emerging slew of bogus “new HECM products” attack the spirit of FHA payout reforms. Live Well Financial’s so-called “HECM Fixed Advantage” invite consumers to take out their entire home equity on day 366 after initial payout while its “HECM Fixed Fourtune” encourage consumers to use their home equity within four years.
     To its credit, Reverse Mortgage Funding’s “HECM Choice” does not ask consumers to take their home equity and run like its more rapacious competitor. Its pitch is more nuanced and subliminal and equally objectionable because its leadership is among the industry’s most experienced and sophisticated, and it should know better.
     Recent FHA MMI Fund experience says that fully-drawn fixed-rate HECMs are damaging financially to taxpayers because they are strongly associated with borrower tax and insurance defaults. Their appeal to younger borrowers in their 60’s mean many may find themselves without their home-equity cushion later in life when they really need it.
     Besides, if proliferation of  bogus “HECM products” goes unchecked, complexity and confusion, twin concerns that have long dogged reverse mortgages, will resurface as major issues. It is possible that FHA’s HECM Traditional, a fusion of the former HECM Standard and HECM Saver, may have been created, in part, to address the product complexity and confusion highlighted in CFPB’s 2012 report on reverse mortgages to Congress.
     After the near-death experience of the MMI Fund and with the additional tools afforded by the Reverse Mortgage Stabilization Act, HUD could and should stop the “new HECM products” merry-go-round before it gathers lethal steam.
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