On September 23, the MORTGAGEE LETTER 2009-34 hit like a California Quake. Lasting less then a minute to read and the damage was real.

 

“This Mortgagee Letter announces a new set of principal limit factors (PLFs) for the Federal Housing Administration (FHA) HECM program, to assist with the viability of the program. The new principal limit factor must be used for all HECMs for which the FHA case number is assigned on or after October 1, 2009.”

 

Translated, “Gentlemen start your engines, you’ve got one week to get a borrower a case number.” Simply stated, the new set of Principal Limit Factors means 10% less money to the borrower. More simply stated, a borrower age 70 with a $600,000 home would receive $40,000 less money. Yes, that’s correct Mrs. Walker $40,000 less money to you if we can’t get you counseled, take your application and get a case number assigned to you by October 1. Yes I know, that’s equivalent to more then you paid for your first home and 3 years worth of Social Security checks and yes, you could buy a new Buick with that much money (If you don’t just love the color, you can return the car in 60 days or less).

 

It was exciting on that Wednesday morning of September 23rd. We rallied the troops for a quick briefing. People were walking and talking fast. The message was loud and clear, you can’t get a case number without a Counseling Certificate and there’s going to be an overload on the counselors. People were dialing like crazy trying to get the message out to all those “fence sitters” that hadn’t made up their minds yet. For you newbie’s that are just getting into the business, NEVER EVER PUSH A SENIOR BORROWER INTO MAKING A QUICK DECISION… except when there’s more then $40,000 at stake. You say you are available on Thursday, well I have a 10am and a 2pm, great, see you at 6pm. WOW, I haven’t done 3 applications in the same day in years!

 

Some borrowers also got caught up in the urgency and value of the moment. “My neighbor Maude needs to know about this, would you mind telling her about it?” A referral too! Then the impossible happened, while this was all going on, Snoopy calls and increases the YSP “because we love you.” Someone better pinch me.

 

“To assist with the viability of the program” started in the House as an appropriations bill for $798 million and ended in no change in the Principal Limit. The Senate version came in with a $288 million appropriation and a 5% reduction in the Principal Limit. By the time we got to the 3rd week of September, the consensus was for no appropriations and an across the board 10% reduction in the Principal Limit effective October 1st 2009.

 

When the week was over, we as an industry racked up an electrifying 10,000 plus HECM case numbers. We did a total of 19,055 HECM case numbers in September according to John Lunde, President of Reverse

Mortgage Insight, Inc. We basically did a month’s worth of volume in one week. What is amazing is everything worked! I’m proud of our counselors for working until 9pm every night. I’m proud of our industry with everyone helping each other to get the job done. The ability to get a case number performed flawlessly.

 

Total FHA case numbers issued exceeded 60,000 in the month of September. When viewed on an annual basis, September 2009 for HECMs will need an asterisk beside it for explanation.

 

Now that the frenzy is over, I feel sorry for those borrowers who missed the cut off and will not be able to pay their existing loans off or the people planning on doing a “for purchase” and not being able to because of the 10% reduction. Hopefully, home prices will begin to rise again sometime next year and we will be able to help these people out in the near future.

 

The reality to us brokers has also set in. This means fewer loans to be made in the near future with less borrowers being able to qualify in an already very crowded field of participating brokers. There are over a thousand of us trying to make a living with a single product. With home values down and now being able to lend less money, we are missing over 40% of business to borrowers who want to do a reverse mortgage but now don’t qualify.

 

As the jobs picture starts to improve next year and home prices start to level off, I am hoping the private sector will be bringing other products back into the market. The jumbo reverse mortgage market has been a void for some time and needs to be filled as well as other products helping the emerging baby boomer market. So, we’ve been through a rough patch of business this past year.

 

The good news is there appears to be a light at end of the tunnel and as the ever optimist, things are looking up! Have a great Conference!