RMF Dad or mum CFO: Reverse Mortgage Program Adjustments ‘Internet Optimistic’ for the Trade
The changes made by the US Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), the Government National Mortgage Association (GNMA or “Ginnie Mae”) and others have resulted in a number of important changes to the the reverse mortgage industry has had to adapt.
However, these changes can likely be seen as a “net positive” for the industry, given the impact most of the changes in recent years have had on investor confidence in the reverse mortgage product category, as well as the overall improvement of the customer’s perception of reverse mortgages as these changes have had a greater impact on the policies and practices of the entire industry.
This is according to Timothy Isgro, chief financial officer of Reverse Mortgage Investment Trust (RMIT), the parent company of the top 10 lender Reverse Mortgage Funding (RMF), who gave his view on the health of the business and the investment activities that take place in it at the Virtual Policy Conference the National Reverse Mortgage Lenders Association (NRMLA) in April.
Industry changes that were “net positive”
Speaking to Mark O’Neil, RMF’s national sales manager for large and correspondence loans, Isgro was first asked whether the many changes in the industry in recent years have been good or bad for the reverse mortgage industry and its investors. Overall, the changes were generally positive, but this also needs to be balanced with the perspective that some changes were not beneficial, Isgro says.
“I think you have to admit that policy changes have both helped the space in terms of institutional investor and hindered the space a little,” he says. “All in all, I think this is a net positive because if you look back on the policy changes since 2013 with the Reverse Mortgage Stabilization Act, that law is a very simple law and has given the Secretary of the HUD the power to make changes to the Mortgagee Letter’s HECM program, of course. “
This was a simple, but still demonstrable, change in the way the HECM program was operated, and the use of these powers by subsequent HUD Secretaries was an example of the priorities the government had in managing the HECM- Program has.
“That was important because it kicked off this phase of development and change for the program at a fairly rapid pace,” explains Isgro. “The Secretary has largely used these powers to reduce the risk of newly issued HECM loans. Things like limiting the borrower to 60% of the main limit upfront outside extenuating circumstances, adopting rules for financial valuation, and effectively drawing the space [was] Dramatic, of course, and we all agree that this is a good change. “
Even in the past and more recently, the introduction of new rules for the Protection of Spouses Without Borrowing (NBS) has proven to be a significant change, widely praised by lenders and service providers as the government seeks to isolate such stakeholders from one adverse event, including an acceleration in the due and payable status of a loan.
“These changes – and the reduction in the risk of newly issued HECM loans – had a huge impact in reducing the stigma that space has suffered in the past. This, in turn, allows a new institutional investor with confidence to go to an investment committee of a large investment firm and take out reverse mortgages [to them]. ”
How some industry changes have hampered the reverse mortgage business
Often times, when it comes to some potentially negative industry impact from the Reverse Mortgage Policy Guidelines, it can be due to the speed of adoption and whether the stakeholders and / or government fully understand what the industry is doing This will be particularly important to investors, explains Isgro.
“On the negative side, I think you need to acknowledge the fact that in some cases the policy changes could have been implemented more thoughtfully,” he says. “Constant [or] Surprising changes make it difficult for investors to have confidence that their investment theses will remain constant, will prevail, and will last in a few years, or even 12 or 24 months. You don’t have to look very far to find some examples of where the HUD could have done a little better [in this regard]. ”
Isgro cites a key example of its position and mentions the introduction and subsequent consolidation of the HECM Standard and HECM Saver reverse mortgage options, which can negatively affect investor attitudes towards reverse mortgages.
“You have [HECM] Savings and standard programs, which are introduced and then discontinued, change the main marginal factors that generally occur[ing] more conservative, ”he adds, citing late 2017 changes for reverse mortgage PLFs. “And these disrupt investor predictions for prepayment speeds, which are the top concern for investors in HECM-backed securities (HMBS) and even proprietary products.”
It is also difficult to ignore the disruption that comes with changes in the reverse mortgage rate index. A mortgage letter announced earlier this year that the London Interbank Offered Rate (LIBOR) as an index for HECMs with variable interest rates would be withdrawn in favor of the Secured Overnight Financing Rate (SOFR). SOFR, while disruptive, is considered the stated preference of the reverse mortgage industry.
“More recently, of course, Ginnie Mae’s announcement that it would stop accepting new LIBOR loans and securities [factors in], “he says.” Each of these surprises hurts investor confidence. But I think when you look back at the balance, you have to do the big changes that have increased the lower risk on new products [acknowledge that] That was a net positive result for the room. “
The state of investor confidence
Regarding where investor confidence currently stands for reverse mortgages, Isgro believes that despite the amount and pace of changes being made in the market, there is an overall positive assessment of the potential for the reverse mortgage category in both the FHA and the FHA exists in the FHA. sponsored and protected products. When Mark O’Neil noted at his relief that investors were not “put off” by this category, Isgro made his feelings clear on the matter.
“No, on the contrary, I think there are more investors in the room than ever before,” he explains. “The HMBS space has deepened, but I think beyond that, the private label securitization sector has also deepened. [That] The space has grown from nothing in 2013 or 2014 to now dozens, or maybe even 100, different investors who don’t invest in Ginnie Mae-guaranteed securities. [but] Securities issued by trademarks. “
Both panelists agreed that such a development leads to encouraging news for reverse mortgages.