NRMLA is not the only industry stakeholder providing feedback to government officials.

At the end of last month, Mortgage Bankers Association (MBA) made seven recommendations for reforming the programs. His letter focuses on better liquidity options Ginny Mae Along with supporting the recovery of high-balance loans, along with the scaling back of the mortgage insurance program that has been criticized for suppressing borrower demand.

The MBA also spoke in favor of an alternative to requiring a second appraisal for some HECM loans. This increases the use of automated valuation models (AVM) and other methods to reduce costs and increase processing times. Meanwhile, Assessment Institute told government officials that he supports the second valuation rule because it “provides a mandatory check against the risk of overpricing.”

What does NRMLA want?

In an interview with Housing wireSteve Irwin, president of NRMLA, Daily Reverse Mortgage, said his organization “firmly believes that the FHA-insured HECM program is an important foundation from which to develop new products, and other cool and exciting innovations.”

But the HECM and HMBS programs, mainstays of the industry for decades, will need to keep up with the glut of proprietary reverse mortgages in the market, he added.

In its letter to federal housing officials, the NRMLA asserted that proprietary products would not meet the needs of many borrowers. Private-label products with adjustable rates are available in about 27 states and fixed-rate products in 34 states, while a handful of states, such as Maryland and Tennessee, ban all proprietary reverse mortgages.

Perhaps the biggest disadvantage of a HECM in relation to a private label loan is the up-front mortgage insurance premium (MIP), which is 2% of the home’s value. NRMLA said this cost is particularly detrimental to borrowers who are withdrawing a small percentage of their home equity, and it estimates that about 25 percent of potential HECM originations have been lost since the FHA introduced risk-based pricing in late 2017.

“What we see is that, given the current economic conditions, some people may not qualify because of the high costs associated with this initial mortgage insurance premium,” Irwin said.

The trade group is advocating a return to the previous structure in which borrowers who initially withdraw 60 percent or less of the principal cap factor would pay 0.5 percent of the home’s value. It also suggests that the annual MIP for these borrowers could be increased by 0.5 percent from its current figure to offset any operational losses to the FHA’s Mutual Mortgage Insurance Fund.

“Lenders are more sensitive to up-front costs than ongoing rates because they don’t make mortgage payments,” NRMLA explained in its letter. “… This proposal would also improve the fairness of the program. Homeowners who borrow more, and carry a higher level of risk, would pay more into the MMI fund.”

Ideas for HMBS reform

The trade group also cited some key changes they would like to see to the HMBS program. One of them is the constant maturity Treasury (CMT) off overnight financing rate (SOFR) which has been an investor benchmark for some years. The NRMLA argued that this would “improve the efficiency and pricing of the HMBS market.”

As it currently stands, the floating rate securities issued by the GiniMAE are based on a Sofar index that is reset every month. But the HECM loans shorting the securities are structured into one-year CMTs, creating a “parallelism” that makes prices less favorable and lower investor demand.

“We don’t want HMBs to be an outlier, nor a niche product, when it comes to the use of applied indicators,” Irwin explained. “And because investors are more comfortable modeling the SOFR index, we don’t think we should be operating with a disconnect and reliance on the CMT index.”

Irwin also touched on the idea of ​​HMBS as a new security that is gaining support across the industry. This would “directly address the significant liquidity and operational risks currently facing issuers and, indirectly, Jennie Mae and the FHA.”

The new offer will include HECM loans that must be repurchased from their HMBS pools after reaching 98 percent of their Maximum Claim Amount (MCA). Critically, the NRMLA said the new proposal would not require borrowers to purchase restructured loans at 98% of their MCA, nor would it require any related tail purchases.

The trade group cited bankruptcy at the end of 2022 Reverse mortgage funding As “hard evidence of the risks inherent in the current HMBS structure”, writing that the company is unable to finance the mandatory purchases of these high-balance loans due to high interest rates and reduced investor demand.