Loren Riddick on reverse refi churning, HECM misconceptions

"To ask a client who has a $1 million property and just wants to set up a line of credit as a great financial tool which it is to pay about $30,000 to $37,000 in closing costs because they have a $20,000 mortgage insurance premium on barely a 10% LTV just doesn't feel right."

"If a client isn't going to take a draw at closing, maybe they only have a half-percent MIP. Then, when they reach the maximum of what they can access, the rest of it would be fulfilled into the fund. That's one thing specifically related to the mortgage insurance situation that I hope somebody hears."

"I'm not a big fan of HECM-to-HECM refinances; I feel like that's eating our young. As an industry, we shouldn't be doing it unless it truly is justified for the client. Churning that business isn't good for the industry, and it's not good for clients to continue paying closing costs."

The HECM program provides valuable protections through mortgage insurance, including lender coverage, nonrecourse features, and guaranteed heir equity. However, current pricing structures create inefficiencies. Borrowers with high-value properties seeking modest lines of credit face disproportionately high closing costs due to substantial mortgage insurance premiums on low loan-to-value ratios. Proposed solutions include adjusting front-end mortgage insurance premiums based on actual draw amounts at closing, with remaining coverage fulfilled through annual premiums as credit is accessed. Additionally, HECM-to-HECM refinancing practices warrant scrutiny to prevent unnecessary churning that burdens clients with repeated closing costs while potentially harming industry integrity.

Read at www.housingwire.com