“If you are going to achieve excellence in big things, you develop the habit in little matters.” – Colin Powell
The Federal Housing Administration (FHA)’s Home Equity Conversion (HECM) program has provided great benefits to U.S. seniors since it was launched in 1989, having enabled over 1.27 million borrowing households to access their home equity so they might effectively age in place. Since the program’s inception, we have witnessed material and impactful incremental change on the origination side.
The program has successfully evolved from a demonstration program to a permanent financing option for older homeowners. We have seen refinance rules promulgated and origination fee structures established. Ginnie Mae started guaranteeing HECM-backed securities to further the program’s mission. Principal Limit Factors have adjusted and the HECM for Purchase program was launched. Upfront mortgage insurance premiums changed, and then changed back again.
Financial Assessment was put in place, and a robust Collateral Risk Assessment was established. All of these incremental changes have served to strengthen the HECM program’s performance within the Mutual Mortgage Insurance (MMI) Fund. What is needed now is a bold and forward-looking change to the back-end of the reverse mortgage life-cycle. Something that will further strengthen the HECM’s performance and ensure the long-term viability of this critically important financing option. What is needed is to move HUD beyond its post-assignment loan administration duties and to develop a program that enables the current servicer to continue to service the HECM after its assignment to FHA.
FHA shouldn’t be in the reverse mortgage servicing business. Companies that specialize in servicing HECMs should be able to see a HECM case through to its proper conclusion. Enabling a current HECM servicer to continue with its loan administration duties, post-assignment, benefits HECM borrowers. The servicer has an established relationship with the borrower and the borrower knows where to call with questions or to request loan advances. Files do not have to be transferred and onboarded, an area where much confusion has occurred each time HUD has had a new contract servicer take over.
Bringing a smoother transition at assignment, with less disruption to borrowers, and stronger “hands-on” servicing and client-relationship management over the life of the loan post-assignment, would bring tremendous financial savings to the HECM program and serve to strengthen its position in the MMI Fund.
Enabling a current HECM servicer to continue with its loan administration duties, post-assignment, benefits HUD and FHA. FHA would benefit from the immediate relief gained by leaving servicing in the hands of the private market, with participants who understand reverse mortgage servicing thoroughly and who are already highly incentivized to minimize servicing-related losses.
Allowing the private industry to service loans that would otherwise have been assigned to, and serviced by, FHA would allow FHA to capture the value of the private industry’s superior loss avoidance practices: property sales at much lower discounts to appraised values, more efficient and beneficial loss mitigation practices, more efficient and consumer-friendly insurance loss procedures and timely management of due and payable loans.
Lastly, enabling a current HECM servicer to continue with its loan administration duties, post-assignment, benefits HECM mortgagees. In allowing mortgagees to retain the servicing on loans for the entire life of those loans, these entities would continue to earn servicing fee revenue for that period. This revenue would likely have two effects: it would strengthen the business models for mortgagees, and, if past HECM program changes are an indication, the competitive nature of the mortgagee market would force these entities to pass some, or all, of these benefits on to borrowers in the form of more advantageous loan pricing.
The implementation of such a program is not without its challenges. A system will have to be developed to assess the success or failure of such a program. Legal documentation will have to be drafted and executed. Servicing and subservicing contracts will have to be reviewed and amended. And of course, operational processes will need to be carefully and deliberately developed. These challenges are not insurmountable and have already been carefully considered by the National Reverse Mortgage Lenders Association (NRMLA) and its leadership team.
As mentioned, bringing a smoother transition at assignment, with less disruption to borrowers, and stronger “hands-on” servicing and client-relationship management over the life of the loan post-assignment, could bring significant savings to the HECM program. NRMLA and reverse mortgage industry participants stand ready to assist FHA with legal, operational, and analytical resources as it considers such a bold and forward-looking proposal.
This column does not necessarily reflect the opinion of Reverse Mortgage Daily and its owners.
To contact the author of this story: Steve Irwin at NRMLAOnline.org
To contact the editor responsible for this story: Chris Clow at [email protected]