After the release of proposed new rules for the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) program late last year, the reverse mortgage industry expressed a lot of excitement.
In the newly proposed rules handed down in October, the H4P program would, in certain circumstances, allow for inclusion of an interested party contribution of up to 6% of a home’s sale price. When the news was shared during a panel discussion at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting and Expo in Nashville that week, attendees erupted in cheers.
But after concerns were brought to the attention of policymakers during the proposal’s comment period, the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) announced their decision late last week to walk back some of these plans.
AARP concerns
“FHA will move forward with its proposal that permits contributions by the property seller, real estate agent, builder, or developer to HECM for Purchase borrowers’ closing costs,” HUD said in its update to the policy. “However, at this time, FHA will not allow [lenders] and third-party originators (TPO) to make such IPCs, nor will it allow premium pricing to qualify as an eligible funding source to meet the borrower’s minimum required investment.”
Many of these concerns were expressed by influential senior advocacy group AARP, one of the largest consumer interest groups in the U.S.
In a letter to FHA Commissioner Julia Gordon, David Certner — AARP’s legislative counsel and legislative policy director in the government affairs division — explained the group’s opposition to premium pricing credits on H4P loans while permitting lenders and third-party originators to contribute to closing costs. Certner cited fair lending concerns and the potential of undue borrower influence.
RMD reached out to AARP and received a statement from Jenn Jones, its vice president of government affairs, financial security and livable communities.
“AARP applauds HUD’s update to its Home Equity Conversion Mortgage for Purchase Program which keeps vital consumer protections in place,” Jones said. “The changes will prevent the risk that a consumer accepts a higher interest rate in exchange for a credit at closing, without being able to estimate the long-term cost of that tradeoff.
”The update will also help avoid potential undue influence by lenders and third-party originators. These consumer protections have always been an important aspect of the HECM program.”
FHA/HUD flexibility
Discussion around the H4P product has accelerated in recent months as more reverse mortgage lenders are embracing it as a potential path forward for the business, despite its consistently low penetration rate within the HECM program.
For Lisa Moriello, the national retail reverse mortgage sales manager at multichannel lender loanDepot, this announcement constitutes more of a “clarification” to the announced policy than an outright change.
“I think they just clarified who they think interested parties should be,” Moriello said. “They really don’t want premium pricing going on to supplement borrowers. They don’t want that stuff. […] I think the rules are often made to protect us from the few that abuse them, so I think most of our industry is pretty clear on what these rules are.”
Moriello added that she has been impressed with the visibility of HUD and FHA responses on reverse mortgage issues as of late, including this one.
“I’m impressed with HUD that they came out with a clarification so quickly, and that they’re allowing for all this public commentary,” she said. “They’re using it to help shape the process going forward. Those are huge steps that years ago were never happening.”
Instead, HUD is enlisting more feedback and allowing the industry professionals who know the product best to have more of a seat at the table, she explained.
“They’re really actively going out there and asking what we think about this, and whether or not there should be changes,” Moriello said. “There’s always going to be somebody who’s not happy with the way things are going. But right now, I don’t think they said anything that we didn’t already know.”
Broker perceptions
Scott Harmes, the national manager of the reverse division at brokerage C2 Financial, believes that HUD’s changes are constructive.
“The fact that FHA is moving forward with letting these specific entities make IPCs is good,” Harmes said. “I think it actually may keep the business cleaner and less confusing by not letting mortgagees and third-party originators make IPCs, because that tends to get a little bit messy, so I think this is actually constructive since they’ll let sellers, builders and real estate agents make IPCs.”
Tane Cabe, also of C2, concurs with Harmes. Cabe said that the change to allow IPCs in the first place was long overdue. The fact that HUD and FHA have decided to make changes while maintaining IPCs in the H4P program does not diminish the progress that the original announcement represented, he said.
“Instead of having all these lenders and brokers trying to compete, and drop their pricing and pay for closing costs, I think it’s better to have the seller pay for those closing costs versus having a lender credit, personally,” he said.
The changes on their own will not do any real damage to the strides that FHA and HUD made with the H4P product when first announcing the changes in the fall, he said.
“I think the big the big shift here is what they laid down six months ago, allowing builders and sellers to cover some of those costs,” Cabe said. “That’s going to become more and more important as the market softens, and as less people can afford homes and less households are created.”