Industry experts have zeroed in on two urgent points: mortgage insurance coverage and liquidity constraints, which the MBA letter addresses.
“The demand for HECM loans stays robust amongst seniors. Nonetheless, total HECM mortgage quantity has not elevated because of overly burdensome elements of the mortgage course of and the steep upfront prices related to the mortgage. These components discourage many potential debtors as they consider whether or not a HECM is appropriate for his or her wants,” the MBA acknowledged in a letter dated Nov. 26.
The letter was signed by Pete Mills, the MBA’s senior vice chairman of residential coverage and strategic trade engagement. It was addressed to Frank Cassidy, the FHA’s principal deputy assistant secretary for housing, and Joseph Gormley, Ginnie Mae’s chief working officer.
Liquidity proposals
Beneath present guidelines, Ginnie Mae requires lenders to purchase a HECM mortgage out of an HMBS pool as soon as its excellent principal stability reaches 98% of the utmost declare quantity (MCA).
The MBA is advocating for a brand new HMBS safety that might permit all HECMs at 98% of the MCA to be resecuritized. The affiliation argues that this transformation would stimulate investor demand and enhance warranty price income.
Individually, the commerce group proposes a program to permit personal servicers to proceed servicing loans after project to the FHA — as soon as the 98% MCA threshold is met. This might relieve FHA of servicing losses and operational burdens. Seniors would additionally keep away from the confusion and complexity of servicing transfers.
“Non-public servicers would retain servicing price income all through the lifetime of the mortgage, strengthening their enterprise fashions,” the MBA acknowledged. “The aggressive nature of the market may encourage entities to cross some or all the advantages on to debtors within the type of extra advantageous mortgage pricing.”
Mortgage insurance coverage and extra
The MBA additionally addressed issues in regards to the HECM mortgage insurance coverage premium (MIP) construction.
The present upfront MIP — 2% of a house’s worth — is extensively thought-about extreme. The affiliation proposes basing the upfront MIP on the quantity truly drawn fairly than the house’s worth or the MCA, which the commerce group claims would higher serve lower-risk owners.
To offset modifications to the Mutual Mortgage Insurance (MMI) Fund, the MBA helps a focused enhance to the continued MIP, which is at present 0.5% of the excellent stability. It additionally recommends the next upfront MIP for debtors refinancing from one HECM to a different to discourage pointless churn.
The MBA urged FHA to extend principal restrict components, noting that low ranges of accessible fairness discourages some debtors. It additionally “strongly opposes” a compulsory Life Expectancy Set-Apart (LESA) requirement for all debtors, arguing that it ought to apply solely to these at excessive threat of default.
The commerce group requires modernization of the collateral threat evaluation course of, together with higher use of automated valuation fashions (AVMs) to cut back prices and delays. And it encourages the broader use of digital instruments and expanded distant entry to counseling services.
The MBA envisions a market through which each HECM and proprietary reverse mortgage products serve “distinct however obligatory roles.” But it surely agrees that the HECM program wants modernization, so it’s proposing modifications that it believes “will assist decrease prices for shoppers, enhance adoption, and improve long-term sustainability.”
HUD is accepting feedback on the RFI via Dec. 1.
