Officials with the Department of Housing and Urban Development (HUD) this week shared several updates concerning ongoing initiatives related to the Home Equity Conversion Mortgage program.
Speaking during the National Reverse Mortgage Lenders Association’s eastern regional conference in New York City, key HUD staff discussed the agency’s most recent series of HECM program changes, the impact of the new rules on the industry, and what’s in store for the HECM world in the coming months.
“Now that the majority of the policy related to stabilizing the HECM program have been completed, we are focused on evaluating the impact of those changes,” said Karin Hill, senior policy advisor with HUD’s Office of Single Family Housing.
HUD is also focused on identifying areas that may require updates in HECM policy, Hill added, as well as codifying, via a proposed rule, the entire HECM regulatory section of the Code of Federal Regulations.
“We’re getting down to some of those operational levels that we think will also support the functioning to make the HECM program better,” Hill said.
HECM program metrics for Fiscal Year 2016 illustrated some of the impacts from recent rule changes over the years, such as the Financial Assessment and upfront draw limitations.
For FY 2016, through February 29, 2016, adjustable rate HECMs reached 89% of total endorsements year-to-date, reflecting the impact of policy changes related to the termination of the fixed-rate standard, full-draw HECM. This high share of adjustable-rate HECMs brings the industry back to a similar status in 2010, when there was about the same level of ARM loans in the market, prior to reducing the fixed-rate product, Hill noted.
There was also a significant shift in 2015 in the choice of ARM plans, from monthly adjustable-rate products to annual ARM HECMs, with annual arms increasing from 2.4% in 2014 to over 60% in 2016. Meanwhile, Hill noted fixed-rate loan production continued to decline in 2016.
In April 2015, with Financial Assessment looming at the end of the month, HECM endorsement volume was significantly higher February through April than what it was prior to that, due to the influx of borrowers rushing to obtain HECM case numbers before April 27.
HECM endorsement volume then dropped off considerably in the months following, however, looking at FY 2016 data, Hill noted that volume, with the exception of January, was consistent with the last few months of 2015. Despite the short-term dip in volume, HUD remains optimistic that the current environment for the HECM program will contribute to the reverse mortgage industry’s long-term growth.
“We certainly look forward to the HECM program continuing to settle down,” Hill said. “Based on the perception of the program and the marketing in the industry, we feel that will increase our volume going forward.”
As HUD continues to examine the HECM program, as well as develop operational system enhancements internally, the agency is currently working on publishing a HECM-specific section of the Single Family Handbook, the latest 4000.1 version of which, became effective September 2015.
“Staff at FHA have been working on a HECM section that will be included in 4000.1,” said Erica Jessup, HECM program specialist at HUD, during Tuesday’s conference.
The new handbook will cover origination through endorsement of HECM policy, and will update the current HECM handbook 4235.1., which was first issued in 1994. Not only will the new handbook replace version 4235.1, but it will also incorporate guidelines found in HUD’s Financial Assessment Property Charge Guide, as well as Mortgagee Letters that are still active, Jessup said.
There are also plans to include a section on reverse mortgage servicing at a later date. As HUD crafts the new guide book and prepared it for publication, Jessup said the agency will “put it on the drafting table,” providing an opportunity for the reverse mortgage industry to view its contents and provide feedback to FHA.
As of right now, HUD does not have a timeframe for when the handbook will arrive.
“We are working and we’re hoping to get that done this fiscal year so the industry can have the opportunity to make comments on it,” Jessup said.
Looking ahead, in terms of future rule-makings for the HECM program, HUD has been active in recent months, releasing a stream of updates regarding non-borrowing spouse provisions and loss mitigation options for reverse mortgage servicers.
Aside from the initiatives laid forth during Tuesday’s industry event, it is likely that substantial program updates will be more sporadic than in recent history.
“While we certainly won’t quit publishing Mortgagee Letters, we feel that hopefully they won’t be coming so quickly one after another,” Hill said.