Archive for December, 2013

A Fixed Disadvantage

Tuesday, December 24th, 2013


A major reverse mortgage lender, Live Well Financial, recently introduced a “new” fixed rate HECM reverse mortgage product it is calling HECM Fixed Advantage. On the heels of another “new” fixed rate product from a new major lender (Reverse Mortgage Funding), it suggests that we are going to see permutations of “new” fixed-rate HECMs in 2014, concocted to comply with the letter if not the spirit of drastic new FHA rules governing reverse mortgage funds disbursement.

According  to a report in ReverseMorgageDaily (RMD), the Live Well Financial product  “allow the borrower to withdraw the remaining funds from a fixed rate reverse mortgage one year after the loan has closed, after initial use limitations apply for the first year post-closing.”

In contrasting its “product” with RMF’s HECM Choice in the RMD news report, Bruce Barnes, an executive at Live Well Financial, said:  “Instead of requiring a borrower to take a term or tenure payment to obtain the additional funds, the HECM Advantage will automatically provide the borrower with 100% of their remaining funds on day 366. This is a significant difference [between the HECM Advantage and the HECM Choice] and one that we believe borrowers and lenders will prefer.”

It is not clear whether any responsible lender in the reverse mortgage industry will encourage or require borrowers to take 100 percent of their principal limit on day 366. The new rules rule out 100-percent draw on day one, but it is silent about the remaining 40 percent on day 366. Live Well Financial’s HECM Fixed Advantage is clearly designed to exploit that loophole.

While the HECM Fixed Advantage may not have violated the letter of recent FHA rules about HECM funds usage, it clearly offends the spirit of the new rules.

Why did FHA impose the new rules that became effective October 1st to begin with? Simply put: Fully-drawn fixed-rate HECMs almost destroyed the MMI Fund and the reverse mortgage industry. That is why major industry players have a duty to obey not just the letter of the new rules but its spirit as well. If they do not, then FHA will come down with new possibly more restrictive regulations.

A fully-drawn fixed-rate HECM, whether drawn on day one (no longer an option under the new rules) or on day 366 (as Live Well Financial’s HECM Fixed Advantage is being sold), is a dangerous and irresponsible product, and  a fixed disadvantage to borrowers, to FHA’s MMI Fund, and to the reverse mortgage industry.


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