Expected Changes to the Standard HECM fixed rate program:
From the letter to the Senator that was requesting a Moratorium to the entire fixed rate program from the 2nd in charge at FHA, they intend to put a moratorium on the fixed rate program in order to cure a ballpark 2.8 billion of possible insured losses based on a flawed algorithm to calculate those losses. Meanwhile there are basically no changes to the Regular Mortage FHA program, when it is in default by about 22 billion.
Acording to insiders this is due to the thinking that forward purchases are the only thing driving the economy, and reverses don't? The typical reverse mortgage pays 30% off of existing mortgages, gives the homeowner money to make repairs, help their children and to use for their retirement.
Obviously the Standard Fixed Rate HECM program was flawed from the start with most properties going upside-down after 12 to 17 years. With record low mortgage rates about 3.5% at present for standard mortgages, why is the lowest Fixed rate still 4.0% for a reverse and it is like pulling teeth to get it. Why are some companies still selling 5.61%, why haven't they lowered the rates on the fixed, and lowered the max rate. The reason is the same problem why seniors are scared of adjustable: Wall Street.
Wall Street has the demand so through the roof on the fixed rate standard HECM that they are paying banks about 14% for these loans. Do you think most banks or brokers are going to say no don't take the fixed when they are making too much money from the loan.
Wall Street is the same reason people are scared of the adjustables. Wall Street created shortcuts loans that paid better than Fannie or Freddy loans with no income checks, brokers pushed these loans because they were fast and easy, and it turns out that they were "explosive arms". These adjustable loans gave the term adjustable a run for the hills and take your money with you mentality, because if you got one you either refinanced out or ended up in foreclosure. The adjustable HECM is a great product, nothing like an explosive arm and it is normally a better option for most seniors. The fixed rate is also in demand from seniors because the adjustable has nowhere to go but up, and once inflation hits we're thinking the average will be 8.2% + the margin + the MIP if you look at the next 30 years your upside down anyways unless you leave the money in your credit line.
Hopefully this moratorium that is expected to last 1 month to 1 year will get some of the unscruplous people out of the Reverse Mortgage World for good (that only offer the fixed rate). Hopefully they will correct the fixed rate and bring it back as it is a great loan for some seniors. Reverse Lenders and Brokers should be looking out for the best interests of their customers, not themselves, unfortunately right now the fixed rate sells itself even with a reputable agent because they will pay closing costs for the borrowers on the fixed but they can't on the adjustables.
NRMLA spoke to the Senator requesting the moratorium on all HECM's but this letter from FHA from the woman looking to get a promotion obviously doesn't care about the program, or that his stance may have changed. FHA wants control, can we trust them any more than Congress when they are allowing the 10% of the FHA's problem to take 95% of the hit.
Please contact your senator to let them know this program needs full funding and more products because it works, it helps and it is a good loan.