Reverse Mortgage Saver Program

What Was the Reverse Mortgage Saver Program?

The reverse mortgage saver program was an initiative that was introduced in 2010 by the U.S.  Department of Housing and Urban Development (HUD) to offer an alternative to the standard  home equity conversion mortgage (HECM), which is a reverse mortgage that’s backed by the federal government. The reverse mortgage saver program, dubbed “HECM Saver,” was introduced to help reduce borrowing costs for homeowners who wanted to borrow smaller amounts than those allowed for a regular HECM, which was newly classified as “HECM Standard.”

Understanding the Reverse Mortgage Saver Program

A reverse mortgage is a type of financial arrangement in which a homeowner borrows against their home equity without taking out a traditional home equity loan or home equity line of  credit (HELOC). A reverse mortgage company provides the homeowner with either a lump- sum payment, a series of installment payments, or a line of credit. Interest and fees accrue on the amount received.

As long as the homeowner uses the home as their principal residence, they pay nothing to the reverse mortgage company. If the homeowner sells the property, moves out, or dies, the HECMs have several associated costs, including:

• Interest


• Mortgage insurance premiums (MIPs)


• Origination fee


• Closing Costs


• Servicing fee

 

When HECM Saver was introduced, a HECM Standard had an up-front MIP of 2% and an annual MIP of 1.25%. HECM Saver lowered the up-front MIP to 0.01% but kept the annual MIP the same.

The purpose of HECM Saver was to make HECMs for borrowers who wanted to withdraw smaller amounts of equity from their homes.  Borrowers who wanted to take out larger amounts still had the option to use HECM Standard, paying higher up-front MIPs in exchange.

 

Special Considerations

HECM Saver was eliminated in 2013, taking with it the appellation HECM Standard. This was done as part of an effort to streamline and strengthen the HECM program to make it easier for homeowners to borrow against their equity.

In its current form, the HECM program insures reverse mortgage loans for borrowers who meet all of these requirements:

• Are age 62 or older


• Own their homes outright or have paid off most of their mortgage


• Are not delinquent on any federal debts, including taxes or student loans


• Live in an eligible property that’s used as a principal residence

 

For HUD and Federal Housing Administration (FHA) purposes, eligible properties include single-family homes and two-, three-, and four-unit homes if the borrower lives in one of the units. Homeowners who live in townhouses, condominiums, and mobile homes may also be able to get approved if the home meets FHA requirements

Homeowners are required to attend HUD-approved counseling. They’re also required to pay the various costs associated with HECMs, including MIPs. As of April 2022, HECMs have an up- front MIP of 2% and an annual MIP of 0.5% of the mortgage balance.

 

What Is a HECM?

HECM stands for home equity conversion mortgage. It is a type of reverse mortgage that’s insured and backed by the federal government. HECMs are designed for savers who are 62 or older and own their home outright or have paid down the majority of their mortgage balance.

 

What Is HECM Saver?

HECM Saver, also referred to as the “reverse mortgage saver program,” was introduced by the U.S. Department of Housing and Urban Development in 2010 to provide an alternative product to regular HECMs. Borrowers who received a reverse mortgage through HECM Saver were able to take advantage of reduced up-front mortgage insurance premiums, or MIPs.  The program was discontinued in 2013.

 

What Is the Difference Between a HECM and a Reverse Mortgage?

HECMs are a type of reverse mortgage. They are different from other reverse mortgages because they’re backed and insured by the Federal Housing Administration and issued by an FHA-approved lender. All HECMs are reverse mortgages, but all reverse mortgages are not HECMs.

 

What Are the Downsides of a HECM?

There are some drawbacks associated with HECMs, including the annual and up-front MIPs that are required and the interest that can accumulate over the life of the loan. Another key disadvantage is the way HECMs are repaid. Once the homeowner stops using the home as a principal residence, the HECM balance is due in full, and their heirs may be forced to sell the property to pay off the HECM.

 

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US home prices hit wall amid Fed's inflation-taming rate hikes

Home prices continued to tumble in August, dipping 0.98% nationally as another three-quarter interest rate hike by the Federal Reserve brought balance to supply and demand.

Home prices dropped 0.98% in August, down from the upwardly revised 1.05% monthly decline in July, according to Black Knight. The two consecutive monthly declines were the largest in more than 13 years and ranked among the eight largest on record.

“Either one of them would have been the largest single-month price decline since January 2009 – together, they represent two straight months of significant pullbacks after more than two years of record-breaking growth,” said Ben Graboske, president of Black Knight Data & Analytics. “The only months with materially higher single-month price declines than we’ve seen in July and August were in the winter of 2008, following the Lehman Brothers bankruptcy and subsequent financial crisis.”

The average home price was down 2% (-$8.8K) from its June peak but remains 12.1% higher than this time a year ago when the housing boom was still going strong. Despite price pullbacks, the housing market remains unaffordable for many.

With rates at 6.7% as of Sept. 29, it takes 38.2% of the median household income to make the monthly mortgage payment on the median-priced home bought with a 30-year mortgage and 20% down. That monthly payment was up by 73%, or $930, from last year.

“Historically low inventory – along with record low-interest rates – was one of the key drivers behind US home prices seeing essentially a decade’s worth of appreciation in just two-and-a-half years,” Graboske said.

“Housing market participants have reached an impasse, and surging mortgage rates are the culprit,” added CoreLogic deputy chief economist Selma Hepp. “Many buyers moved to the sidelines as the cost of homeownership became prohibitively high, while sellers were unwilling to give up locked-in record low rates and expectations of the peak sales price. As a result, home price growth continues to decelerate from April’s 20% peak and is anticipated to reach half of April’s rate by December. Home price deceleration and seasonal price decline in some markets will provide opportunities for potential buyers who are now facing lessened competition than earlier this year.”

For-sale inventory levels moved from 1.7 months of supply in June to 3.1 months in July, before pulling back to three months in August. According to Black Knight, the national inventory deficit held relatively steady at -44%, but the market is still short more than 600k listings compared to pre-pandemic levels.

“Right now, prospective sellers are not only coming to grips with falling demand and declining prices due to sharply higher interest rates, but they also have a growing disincentive to give up their own historically low-rate mortgages in this environment,” Graboske said. “Some may be waiting out the market to see if demand – and prices – return in the spring.”

Consumer advocacy group notes reverse mortgage progress and industry willingness to strengthen consumer protections

Progress made by the reverse mortgage industry and the Federal Housing Administration (FHA) in serving borrowers impacted by economic woes stemming from the COVID-19 coronavirus pandemic and inflation has been visible, but there is always more that could be done. This was a perspective shared recently with RMD by Sarah Bolling Mancini, a staff attorney for the National Consumer Law Center (NCLC).

Bolling Mancini, who has served as a reverse mortgage subject matter expert in front of a U.S. House of Representatives subcommittee for a reverse mortgage-focused hearing in 2019, interacts often with representatives of the reverse mortgage industry including lenders, servicers, the trade association and FHA, and describes an industry that is generally receptive to potential improvements when it comes to serving borrowers.

Bolling Mancini recently joined an episode of The RMD Podcast to describe her own interest in reverse mortgages as a subject, and some of the strides the industry has made in the realm of consumer protection.

NCLC and reverse mortgages

The NCLC was initially founded in 1969, and maintains expertise in consumer issues on behalf of low-income people. Government and private attorneys, community organizations and legal services firms work with the organization in its advocacy for the reform of practices that affect the financial lives of general consumers.

The organization has a particular dedication to issues related to homeownership, and proliferating a stable financial life for homeowners. In that respect, the general interaction that the organization has with the reverse mortgage industry makes sense, Bolling Mancini explains.

“In the realm of reverse mortgages, we have consumer law manuals we publish on over 20 different subjects that we cover that are used by lawyers and judges and policymakers around the country,” she explains of the organization’s work. “And we also do trainings and conferences for practicing attorneys that are representing low-income consumers, as well as policy work research writing and testifying in Congress or providing comments on proposed regulations.”

The work that NCLC sometimes does in the realm of reverse mortgages is aimed to ensure the longevity of the product category since it is a financial instrument that can help certain qualifying borrowers, she says.

“It’s a nice opportunity to see the big picture and to work with the advocates that are helping individual homeowners, but really to think about the policies that are at play and how to make reverse mortgages work well for the people that are borrowers,” she says. “[That also works] for the industry as a whole, but really, it’s to preserve this as a good option for people avoiding foreclosures whenever possible.”

The NCLC views reverse mortgages as a tool that can help older homeowners age in place, she says. Certain consumer advocacy groups may not be aware of certain regulatory changes that the FHA-sponsored Home Equity Conversion Mortgage (HECM) program has gone through, which could create challenges for consumers seeking assistance.

“There are some consumer advocates that come at [reverse mortgages] with a lot of skepticism and think that the product can be exploitative and predatory,” she says. “And there are some circumstances where the product gets misused or where there are misrepresentations made to the borrower at the outset. But on the whole, we believe this is a loan that can be really helpful to low income, older adults that — whether their house is their main asset, and if they don’t have a lot of retirement savings, or other assets — this can really enable them to live with dignity and stability in their older years, and to borrow against their home equity without the risk of being displaced.”

If a borrower who has the capacity to qualify for a reverse mortgage does not seek the option out, then other options which may not be a good fit — like refinancing a forward mortgage, getting a  Home Equity Line of Credit (HELOC) — may be pursued instead, she says.

“[Those kinds of options] might not be affordable to seniors who are living on a fixed or reduced income,” Bolling Mancini explains. “So, I think reverse mortgages are just a really interesting product.”

The interest in reverse mortgages

For Bolling Mancini herself, her own interest in the reverse mortgage product category when there were issues stemming from existing non- borrowing spouse (NBS) protections, she explains.

“I probably got drawn to reverse mortgages in part because of things that were happening as I was becoming a more experienced lawyer, that was around the time of some of the litigation around the non-borrowing spouse issues, and NCLC was getting involved,” she says. “And I just found it fascinating. I think it’s legally a very interesting area of the law. But mostly, it has such a huge impact on the older adults that need this product to maintain stable housing.”

The industry has made demonstrable progress on NBS issues during that time, she says, and the advocacy from the NCLC and members of the reverse mortgage industry helped make that progress possible.

“[NBS] is an area where virtually all of the problems have been resolved,” she says. “It took litigation and it took a lot of advocacy by NCLC and other allies in the field, and even the industry was pushing for solutions because I don’t believe that the reverse mortgage servicers and lenders wanted to foreclose on these widows and widowers. They were in a bind given the policies that were in place at the time. But that is an area where we’ve seen such huge progress from the creation of the mortgagee optional election (MOE).”

Other issues that need work

There are still other risk areas that could use some work when it comes to reverse mortgage foreclosures, particularly when it comes to property charge defaults, she says.

“I think that HUD has made some changes that we have welcomed, but there’s just a lot that still needs to be done,” Bolling Mancini says. “There are so few options for workable loss mitigation for borrowers that have defaulted on property charges. And we know that there are still so many borrowers that didn’t fully understand the obligation to pay the property charges, either because the counseling wasn’t clear or there may have been misrepresentations. Or, just people who were used to having those charges escrowed, and who didn’t realize [they would have to] pay this directly now.”

Getting to a point where repayment plans can work well for the borrowers who need them is a priority, she says, since those property charges can be destabilizing for someone on a fixed income.

“It’s a large, once-a-year cost, and sometimes the impact of that got kicked down the road a while because there was money in a line of credit, or the advances were being made and the borrowers didn’t know,” she says. “So, we really are still trying to get to a point where repayment plans can work well for people, and other options to preserve that stable homeownership, especially for people [for whom] a repayment plan might not be viable.”

For borrowers impacted by the COVID-19 pandemic, HUD has taken a lot of positive steps to help borrowers including foreclosure and eviction moratoriums and a HECM extension period which can act similarly to a forward mortgage forbearance, she says. However, property charge defaults can also adversely impact pandemic- affected borrowers.

“What we still haven’t seen is a permanent solution for borrowers who defaulted on property charges and were impacted by the pandemic,” she says. “There’s nothing like the [options available to] forward mortgage borrowers, where they can put the arrearage at the end of the loan and pick up going forward. There’s just nothing like that for reverse mortgage borrowers, and we believe that that’s an important piece of the puzzle that had needs to fix.”

Country Music Tribute Bacon and BBQ Festival coming to MIDFLORIDA Event Center

What: Port St. Lucie Country Music Tribute Bacon & BBQ Fest

When: Saturday, Oct. 8, 11 a.m. to 10 p.m., and Sunday, Oct. 9, 11 a.m. to 8 p.m.

Where: MIDFLORIDA Credit Union Event Center, 9221 SE Event Center Place, Port St. Lucie, FL 34952

The MIDFLORIDA Event Center is partnering with Budweiser and Southern Eagle Distributing to present the Port St. Lucie Country Music Tribute Bacon and BBQ Festival. A two-day event featuring nine amazing national country tribute bands, delicious bacon and barbecue, country and western themed vendors, kids zone and petting zoo, entertainment and fun activities for the entire family. The outdoor festival brings together country music fans with some of the best traditional bacon, barbecue and Southern-style foods.

Tickets are $12 a day or attendees can purchase a special two-day ticket for $20. Children 12 and younger are free. Parking is free. Tickets are on sale now at www.etix.com or in person at the MIDFLORIDA Event Center Box Office, 9221 SE Event Center Place, Monday through Friday, 9 a.m. to 4:30 p.m. Tickets may also be purchased by calling 800-514-3849.

For more details, visit www.pslbbq.com, call 772-807-4488 or email contact@midfloridaeventcenter.com

HECM endorsements hit 11-year high

Endorsements of Home Equity Conversion Mortgages in March jumped to their highest level since March 2011, as seniors took advantage of increasing equity.

Endorsement volume jumped 26.3% month over month to 6,510 endorsements from 5,153 in February, according to the report from Reverse Market Insight. Numbers increased across each of the 10 geographic regions tracked, with the Pacific/Hawaii region seeing the highest overall number of new endorsements, followed by Southeast/Caribbean markets. Meanwhile, Eastern areas had the highest increases by percentage.

Issued by the Department of Housing and Urban Development, home equity conversion mortgages allow homeowners aged 62 and older to tap into the value of their properties.

NAR'S 2022 REMODELING IMPACT REPORT

The National Association of Realtors® Research Group released their 2022 Remodeling Impact Report.

 

Homeowners and renters remodel, redesign, and restructure their homes for a variety of reasons. This report takes a deep dive into the reasons a homeowner remodels, the outcome of taking on projects, and the increased happiness found in the home once a project is completed. It also contains:

 

• 
  

  The typical cost of 19 remodeling and replacement projects, as estimated by members of the National Association of the Remodeling Industry (NARI)

  
  


• 
  

  How much appeal each project is likely to have for buyers, according to REALTORS®

  
  


• 
  

  How much REALTORS® estimate that homeowners can recover on the cost of the projects if they sell the home

  
  

 

Americans spent $420 billion in 2020 on remodeling their homes.1 Among NARI members, 90 percent found a greater demand in contracting in remodeling work. during the COVID-19 pandemic. Sixty percent of NARI members cited the scale of the projects increased either in a larger project or remodeling more than one room due to the pandemic.

While most consumers (83 percent) cite they would have remodeled regardless of the pandemic, 86 percent of consumers report remodeling one area of their home made them want to then remodel other areas of their home.

When consumers remodel, it is to upgrade worn-out surfaces, finishes, and materials (30 percent); to add features and improve livability (20 percent), and because it is time for a change (16 percent). Most consumers are pleased with the overall result and 57 percent would tackle the project the same way, while 35 percent would make a few different choices such as finishes or materials. After remodeling, 84 percent of owners have a greater desire to be in their home. Sixtynine percent have increased enjoyment in their home. Fifty-seven percent feel happy, and 39 percent feel satisfied when they see their completed project, with a typical Joy Score of 9.6. Sixty-nine percent feel a major sense of accomplishment when they think of their completed project.

Thirty-five percent of owners report the single-most important result from remodeling is better functionality and livability, 22 percent report durable and long-lasting results, materials, and appliances, and 14 percent report beauty and aesthetics.

Thirty-five percent of the owners hired a professional for the whole job, 28 percent hired the labor but purchased the materials, and 22 did the entire project themselves. Thirteen percent contributed some do-ityourself (DIY) labor. In some areas of the report, costs are not collected as these projects are more likely to be done DIY or part of a larger project.

The report covers both interior and exterior home improvement projects. This report provides a cost recovery estimate for representative remodeling projects. The actual cost of each remodeling project and cost recovery are influenced by many factors, including project design, quality of materials, location, age and condition of the home, and homeowner preferences. For the purpose of costs collected, NARI members were asked to expect the home was a 2,495 square foot house—the average size according to U.S. Census data—and that the house is a post-1981-built home with no hidden issues. To ensure the most applicability, projects and materials represent standard or typical quality; a few projects feature “better-quality” materials. But there are no top-of-the-line projects.

Seniors believe comfortable retirement is out of reach

“Seniors now see their home equity as a financial tool that can help secure a comfortable Lifestyle”

 

As retirement becomes more challenging for many Americans, seniors are starting to use alternative methods such as home equity to fund their later years, according to reverse mortgage lender American Advisors Group (AAG).

Data from AAG’s Modern Retirement Survey revealed that 81% of seniors believe retirement difficulties will get harder for the next generation. More than a third (37%) of retirees feel that their employers failed to help them achieve the retirement they wanted.

“Traditional financial strategies no longer guarantee a comfortable retirement, and that has many Americans worried about how their children will fund their future,” said AAG chief marketing officer Martin Lenoir. “Seniors are beginning to retire the old ways of thinking when it comes to their post-work life and are using alternative methods to fund their later years, such as utilizing their home equity. The concept of retirement has evolved, and seniors now see their home equity as a financial tool that can help secure a comfortable lifestyle.”

Roughly 28% of the respondents said their retirement strategy did not work out as planned, with nearly one in five seniors citing the pandemic as one of the impediments to their plans.

According to the National Reverse Mortgage Lenders Association, senior homeowners are now sitting on $10 trillion in housing wealth.

“Through a federally insured Home Equity Conversion Mortgage (HECM) loan, more commonly known as a reverse mortgage, seniors aged 62 and older can access their home equity, eliminate their monthly mortgage payments, and remain in their home long term,” AAG said in a statement. “Seniors who use a reverse mortgage loan to remain in their home long term are required to continue paying their taxes and insurance, live in the home as their primary residence and comply with all terms of the loan.”