New view addressed each of the 21 questions asked in the RFI. She believes that some of the reforms she proposes can be implemented immediately, while others could take a year or more.
“To ensure that the HECM/HMBS program remains relevant, HUD (including FHA and Ginny does) must implement a series of new reforms or the federally guaranteed reverse mortgage program will remain a curious appendage to the mortgage industry,” the release said.
‘Too high’ mortgage insurance premiums
Similar to recent comments from the National Association of Reverse Mortgage Lenders (NRMLA), New View Advisors called the HECM program’s prepaid mortgage insurance premium (MIP) an area ripe for change.
New View believed that the initial MIP – equal to 2% of the home’s value or the current loan limit, whichever is lower – is “excessive” and makes HECMs an “expensive product.”
It noted that a borrower whose home value exceeds the $1,249,125 2026 loan limit would pay nearly $25,000 in MIP up front, while a borrower who owns a $500,000 home would pay $10,000.
“For many borrowers, this is a material obstacle to overcome, and it undoubtedly contributes to the low volume of HECM production, as well as the nagging reputation for high costs.”
New View’s argument for a lower upfront premium also relates to the health of the FHA’s Mutual Mortgage Insurance (MMI) Fund. The fund is legally required to maintain a capital reserve of 2%, but a report released late last year found the ratio was above 11%.
New View added that the HECM’s financial assessment reduces risk to the FHA and makes a higher initial MIP unnecessary. It pointed to FHA data showing that the 0.5% annual MIP fees adequately cover losses associated with the HECM program. And it called on HUD to cut the origination fee in half, to 1% of the home value or less, while the fee would be based on the initial principal limit set at closing, rather than the maximum claim amount.
Line of credit too risky?
In response to HUD’s question about “emerging risks or costs” for the MMI Fund of Ginnie Mae, New View Advisors said the line of credit (LOC) option – which represents the vast majority of HECM productions – involves a “highly flawed lending practice.”
The company wrote that the LOC is allowed to grow at the interest rate, plus the monthly MIP rate, which “allows for unmanaged, automatic growth up to the amount a homeowner can borrow without refinancing or revaluation.”
It criticized this feature as running counter to home equity lines of credit (HELOCs), which do not offer automatic growth and can essentially be frozen to limit lenders’ risk in cases such as falling home prices.
New View proposed eliminating the LOC growth feature and limiting these loans to terms of five to 10 years. It proposed an end to the HECM term, tenure and modified options. And it called for a reduction in the initial principal amount in exchange for a proportionately lower initial MIP and a closed-end feature.
No more advice
Every HECM borrower must receive counseling from a HUD-approved provider. But New View believes that if the “dizzying array of product choices” were simplified, as it suggests, this requirement could be lifted.
The company said the many options available “only succeed in confusing the borrower,” which has damaged the product’s reputation and suppressed sales volumes for years. It also suggested that counseling “gives a negative connotation to HECM,” while noting that more complex financial products such as annuities, insurance and adjustable-rate term mortgages do not have a counseling requirement.
“We believe that counseling has been significantly watered down in recent decades, becoming more of a check-the-box step than a more serious safeguard,” the company wrote.
“During a panel at the annual NRMLA conference in October, a speaker spoke about the challenges his grandfather faced in learning and understanding HECM. It is not an easy product to explain, and adding extra bells and whistles, even if they are in the best interest of the borrower, rather than providing clarity, are often the source of much confusion.”
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