By: John Krajsa
AFC Reverse Mortgage
There is popular analysis of FHA “Home Equity Conversion Mortgage “ (HECM) loans out there that attempts to evaluate the cost of a HECM primarily through subjective judgements about dollar cost (“high” closing costs; dollar amount of FHA insurance premiums; ‘high” ratio of closing costs to home value). This analysis tends to be dismissive of Federal cost estimates (Annual Percentage Rate and Total Annual Loan Cost rates) found in disclosures promulgated under the “Truth in Lending Act” (TILA) and Federal Reserve Regulation Z.
The subjective analysis is dismissive of Federal cost estimates in that it concludes that all HECM loans are expensive, while not addressing the fact that Federal disclosures tend to estimate the true cost of many HECM loans to be quite reasonable, even low. It is a mystery to us how an analysis that on its face is inconsistent with and does not distinguish its conclusions from Federal cost estimates has gained credence.
In contrast, a HUD official defended the HECM program last summer at the National Reverse Mortgage Lenders Association public policy conference in Washington by saying that these loans are not expensive loans, they are transparent loans.
In future weeks we will discuss the cost of reverse mortgages, addressing some of the issues raised by the subjective analysis while providing examples of Federal TILA cost estimates for HECM loans.
[…] week in our post on “Cost of a Reverse Mortgage” we commented on how some analysts tend to focus on the dollar cost when evaluating Reverse […]