Still bristling from the Federal Housing Administration's decision in September to cut "principal limit factors" by roughly 10% across the board on Oct. 1, reverse mortgage lenders are now bracing for another haircut, probably around Jan. 1.
After meeting with FHA Commissioner David Stevens before the start of the Nov. 18-20 National Reverse Mortgage Lenders Association's annual conference in San Diego, the trade group's president, Peter Bell, seemed resigned to the FHA's reducing the factors in the matrix used to determine what percentage of a property's value is available to the borrower. The factors depend on the borrower's age and the loan's interest rate; for example, a 62-year-old borrower with a 5% interest rate can now borrow up to 56.2%.
Bell said Wednesday that his members would not be pleased. "This whole thing with risk management has ruffled a lot of feathers," he said.
Changes in the matrix are dictated by the Office of Management and Budget's reading on house prices, which have been declining in most places. Announcement of a further reduction in factors is expected shortly after Thanksgiving.
"It's really a new day in Washington," Bell said. "Evidence-based decision-making drives the process now." A survey by his trade group of the loans booked year-to-date by the three largest reverse mortgage portfolio lenders indicated that, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified because their equity available would have been less than what was still owed on the property.