South Korea’s fledgling reverse mortgage program underwent a revision today when it was declared that, starting next week, seniors 60 and over will be eligible for the program
. Previously, the program was only available to those over 65.
South Korea’s Reverse Mortgage program was modeled on the US HECM program. Only 695 Koreans appear to have participated in the program in 2008, leading the Korean govt. to try to figure out how to increase the program’s popularity.
The government had been considering lowering the minimum age to qualify for a reverse mortgage to 55. This would have been especially shocking because South Korea is ranked 29th in the world in lifespan, averaging 79 years at birth. The United States, in contrast, is ranked 45th, averaging 78 years, making one wonder how economically sustainable a program that reaches to a larger age group is.
We realize that this is not the freshest news, but it does have a large effect across the industry, and we wanted to make sure it didn’t fall through the cracks.
After a slow start, the number of HECM loans rebounded in March. According to the HECM volume reports, 11,261 HECMs were endorsed in March ’09 versus 9,663 a year earlier. This 16.5% increase comes after volume was down 17% in February ’09 compared to February ’08 (9,086 vs. 10,913). January ’09 volume was also down compared to January ’08 (9,858 vs. 9,957), though only slightly so.
Some interesting things to note:
– The top 10 lenders held a 44.6% market share, up from a 42% share a month earlier.
– Only 3 of the top 10 lenders (One Reverse, Generation Mortgage, and Urban Financial) are not banks or affiliated with banks.
The good news for the reverse mortgage industry is that the number of hecms appears to be on the rise again. However, the increased market share to the top 10 lenders means that the other reverse mortgage entities will have to work even harder to assert themselves and regain some of the market share. While 44.6% may be a small amount compared to other industries and indicates that there is still room for competition, any increase doesn’t speak as well for the smaller players.
Mandatory HUD Counseling and the new HECM for Purchase Program are two topics that have been significant to the reverse mortgage industry recently. Waves appear ready to reverberate again after HUD’s recent release of Mortgagee Letters 2009-10 and 2009-11 yesterday. These two letters concern HUD counseling and the HECM for purchase program respectively. Some important points surrounding the letters can be found below:
HUD Counseling
New requirements surrounding the mandatory HUD counseling include that lenders must provide a list of no fewer than ten counseling agencies to every client. Five must be local agencies within the senior’s local area or state. At least one must be within reasonable driving distance to provide the opportunity for in-person counseling if the borrower desires it. The last five must be the National Foundation for Credit Counseling, Money Management International, CCCS of Greater Atlanta, the AARP and the National Counsel of Aging. The counselor cannot assist the borrower in scheduling counseling or pressure them to complete it.
HUD counseling must now include an overview of the senior’s financial situation, including documentation of the senior’s budget. The counselor must evaluate and discuss any appropriate alternatives to a HECM with the senior. Space to record the method of payment for the counseling session has also been added to the HECM Counseling Certificate.
HECM for Purchase
The letter surrounding HECM for Purchase provides guidance to help prevent “buy and bail,” which involves the purchase of a more affordable home in order to cease making payments on the previous mortgage. One helpful correlary is that mortgagors may only have one principal residence at a time. Thus, those wishing to use the HECM for Purchase program to purchase a new principal residence must pay off the existing FHA-insured mortgage before the new HECM for Purchase mortgage can be approved.
All major property deficiencies must be repaired by the seller by closer. Borrowers cannot apply for gap financing.
Sometimes it is interesting to step back for a moment and reflect on the happenings in other countries.
Today, I stumbled across Responsible Equity Release, a UK site that specializes in lifetime mortgages, the British equivalent of a reverse mortgage.
The interesting thing about the equity release program is that while it has many similarities to the US program, some of the types of equitable releases are not available in the US. While a Roll Up Lifetime Mortgage is most reminiscent of the US reverse mortgage program, Fixed Repayment Lifetime Mortgage and Home Reversion Schemes do not exist in this country. In a Fixed Repayment Lifetime Mortgage, the amount to be repaid is decided upon before the mortgage is taken out. When the homeowner dies or sells the home, the amount due is the fixed amount that was determined at the offset. In a Home Reversion Scheme, the borrower sells all or part of the value of the property in exchange for a lump sum. When the borrower sells their home or passes away, the home is sold with the portion of the property still owned by the borrower going to the estate, and the rest going to the plan provider.
A fixed repayment lifetime mortgage program would probably be extremely popular in the states, as it avoids the interest rate calculations that borrowers must wrestle with when they choose between a fixed or an adjustable mortgage, Libor or HECM.
Many countries also have programs similar to the US reverse mortgage program. More to come.
The FHA mandates independent third-party counseling for all those who are interested in applying for a reverse mortgage. While the counseling can be free, it generally costs around $125 and can take in person or over the phone. A certificate of counseling is necessary for the mortgage to close.
Few products require such education. In fact, other than skills such as driving a car or flying a plane, it is hard to think of another product that requires the level of counseling necessary to take out a reverse mortgage.
On the one hand, counseling is important to ensure that seniors are not railroaded through the process and not taken advantage of. In a worst case scenario, the counseling is a waste of $125 and an hour to tell a person something they already know. In the best case scenario, however, the counseling can prevent a senior from being forced into a reverse mortgage by a family seeking to prosper from the proceeds or a lender from committing a fraudulent transaction. There are few downsides to preventing such scenarios.
On the other hand, it is not hard for one to question whether it is possible for independent third party counselors to ever really be completely objective. And time and money are valuable. Most seniors do a fairly good job educating themselves about reverse mortgages. If they do not, no one else should be responsible. In the same way consumers can buy a faulty car or get a bad deal when making a purchase, reverse mortgages should be seen the same way as any other product.
While these arguments have merit, reverse mortgages are not the same as any other product, because the stakes are higher. There are many life events for which counseling would be or would have been useful. Rites of passage such as buying one’s first home, opening a 401(k), and developing an investment strategy, are tasks where knowledge is power and the stakes can be high. A reverse mortgage is the same way. Before making a big decision about finances, knoweldge is power. Mandatory counseling is a good way to prevent against fraud by providing prospective borrowers the same level of counseling many of us wish we could’ve received years ago when making weighty decisions.
At the end of yesterday’s post, I added a line on how government involvement in reverse mortgages was a good thing. And then I pressed publish. However, it took only a few moments for me to realize how complex an issue government involvement in reverse mortgages is–everything from government involvement in the financial market to the real estate market to reverse mortgages in particular. A throw away sentence is inadequate to address this issue. Should the government be involved in regulating reverse mortgages or not?
The reverse mortgage market is a particularly interesting one because it contains two sectors. Government insured loans comprise the majority of reverse mortgages. However, a smaller percentage (about 10% and growing) consist of proprietary reverse mortgages–mortgages carried out without the backing of the government.
Recently we have seen the state governments attempt to regulate the proprietary market. In several instances, these regulations extend some of the same protections offered to federally backed loans to proprietary loans. These protections help protect the consumer from fraud and the lender from a lawsuit and should be considered a good thing, for example allowing a reverse mortgage to be cancelled in the 10-30 days immediately after the closing and requiring the lender to notify the borrower of all the fees involved in the transaction. The federal government has a responsibility to help prevent fraud and protect its citizens. In an environment that is as economically predatory as this one, carrying this responsibility into the potentially dangerous world of reverse mortgages makes sense.
However, in some of the other parts of the proposed bills, government involvement is not as intuitive. For example, some of the new recommendations include complex new rules regarding the licensing of reverse mortgage lenders and brokers. While states have generally controlled who practices what in each state (medicine and law are the two largest examples of statewide certification; education is a close third) requiring specific reverse mortgage certification, even from lenders who are otherwise licensed to complete loans and mortgages, may seem a little extraneous. But given that every state does have different laws regarding reverse mortgages, it seems logical that state practitioners should be knowledgable of their state’s requirements.
So what should the state governments stay away from? Fundamentally, if a person chooses to complete a proprietary reverse mortgage, they have chosen to not receive the protections entitled to them in a federally insured HECM. This does not mean they should not be educated to make sure they are making the right decision, nor does it entitle them to be defrauded. However, the market for third party proprietary reverse mortgages is growing, indicating the demand for something outside of the government programs. The government should allow such a program to be executed by third parties, provided it is executed in such a way that protects its citizens and does not defraud.
n recent reverse mortgage news, Financial Freedom was acquired by IndyMac last month. 
ame changed from Financial Freedom Senior Funding to Financial Freedom Acquisition LLC. 
