The History of the HECM (A Detailed Timeline of the Product's Evolution)
The Reverse Review
of the Product’s Evolution
The first reverse
mortgage is issued by a
savings and loan company
for the widow of a football
coach in Portland, Maine.
The reverse mortgage concept begins to take root at a congressional hearing before
the Senate Committee on Aging. UCLA professor Yung-Ping Chen testifies: “I think an
actuarial mortgage plan in the form of a housing annuity can serve two purposes: First, to enable
older homeowners to realize the fruits of savings in the form of home equity; and second, to
enable those homeowners, who wish to remain in their homes either for physical convenience
or for sentimental attachment, to do as they wish.” Intrigued, the committee chairman responds,
“Well, that is interesting.”
Academics continue to research the concept’s feasibility. A paper by Jack Guttentag of The Wharton School discusses
consumer demand: “The reverse mortgage is badly needed; it is also very different from, and more
complex than, any existing financial instrument. It constitutes a challenge of the first magnitude to the
imagination of the government, and to the ingenuity and adaptability of the private financial system.”
In the HECM business,
it’s not uncommon to hear
people talk about change.
You have surely heard—and
probably even read within
this publication’s pages—that
“change is the only constant”
in the reverse mortgage
industry. Well, we decided
to take a look back at all that
change and review the ups
and downs that the industry
has endured since the HECM
product was first established
as part of a pilot program in
Since then, we’ve witnessed
the rapid growth of Ginnie
Mae HMBS and ridden a
rollercoaster of origination
volume. We’ve seen the
program expand to include
innovative products like
the Saver and HECM for
Purchase, redefining the
possibilities for seniors
who want to benefit
from their hard-earned
home equity. We’ve seen
our counseling practices
improve and consumer
awareness increase. We’ve
read Mortgagee Letter after
Mortgagee Letter as HUD
has continually modified
the rules of the game. We’ve
waved farewell to big bank
lenders and congratulated
smaller companies as they
reach record volumes. Finally,
we’ve watched anxiously as
the CFPB gained regulatory
power, setting out to improve
If our past is any indication
of what’s to come, we can
expect the changes to keep
on rolling as the HECM
program evolves in order to
remain relevant so that we can
continue to provide a valuable
financial service to senior
A look at the evolution of the program
from then to now
reversereview.com 8 TRR | 41
a look at HECM history
Senator John Heinz
issues a proposal
investigation of “the
relatively new and
promising idea” of home
“Today’s hearing is
the first congressional
hearing concerning this
issue,” Heinz testified. “I
hope that today we can
move toward a definition
of the remaining steps
necessary to truly unlock
the value of home equity
for the millions of older
Americans who can
from its promise.” The
Senate approves the
proposal, which requests
FHA insurance of reverse
unveils the Century Plan,
establishing the first
mortgage of its kind that
kept the loan in place until the borrower vacates the
residence, laying the groundwork for government-
insured reverse mortgages. The New York Times
covers the new product, noting widespread consumer
interest: “Reverse mortgages have been so long in
coming that many people hear about them even before
they are available in their areas… American Homestead
said the company receives 200 to 300 letters a day.”
Congress passes a reverse mortgage
pilot program called the Home Equity
Conversion Mortgage Demonstration.
President Reagan signs the act into law, authorizing FHA
to insure reverse mortgages through the HECM
HUD selects 50 lenders by lottery to participate, allowing each to
originate only 50 loans.
FHA holds AARP-conducted counseling training sessions to tackle
The first FHA-insured
reverse mortgage is closed on Oct. 19 by the
James B. Nutter & Company of Kansas City,
Fannie Mae says it will purchase FHA-insured
As the program
approaches its one-
year anniversary, the
number of HECM loans
closed totals 157. HUD
submits an interim report
to Congress, saying
the potential demand
is substantial and the
program is growing
steadily. The volume
cap is raised from
2,500 to 25,000 loans
through fiscal year
In this early phase, the
median borrower only
takes about 30 percent
of authorized loan
proceeds in the first year.
This number will begin to
creep up as the program
HUD submits a favorable
evaluation of the demonstration
to Congress, saying that HECM
volume has “increased rapidly”
as participants become more
familiar with the product. The
report calls the program a
“useful mechanism” and notes
that borrowers “appear to value
the flexibility designed into
the program” through various
The number of qualified lenders
and counselors grows: 52
lenders are now originating in
Four thousand loans
are originated in this
fiscal year alone,
and the program’s
total reaches 7,991.
The median age
for borrowers is 76
applicable to reverse
lenders to provide
total annual loan
costs at the start
of the application
borrowers to shop
The Reverse Review
the industry evolves
The cap on insurable loans is raised to 30,000
through fiscal year 1996 and then to 50,000
through fiscal year 2000. The loan is modified
to allow properties of up to four residences if
the mortgager occupies one unit.
The number of HECM lenders peaks
at 195, but then begins to decline in
the next two years as lenders complain
that the origination fee prevents
profitability. The median borrower
age drops to 72.
NRMLA is founded to represent lender
official! The HUD
Appropriations Act makes
the pilot permanent and
increases the number of
loans to 150,000.
Congress awards funds
for counseling, consumer
education and outreach.
Safeguards are put in
place for borrowers to
ensure the full disclosure
of fees and prevent
HUD is tasked with
finding alternative ways to
More than 38,000 reverse
mortgages have been
insured at this point.
An AARP survey
indicates that 51
percent of consumers
age 45 and older have heard
of a reverse mortgage.
The industry grows as the
number of HECM servicers
increases from one to four
and develops its Cash
Account product, creating
what will be the most widely
originated proprietary HECM
Lehman Brothers introduces
the first private-label reverse
and the majority of loans for
the pool are originated by
HUD submits an evaluation report to
Congress, stating that new loans are
closing at a rate of 300 to 400 per month
as the program sees early success. The
study notes that, with median closing
costs totaling $4,465, the expense is
a concerning stumbling block for
potential borrowers. Also noted is a
concern over the limited access to capital as
Fannie Mae is the sole purchaser. The report
deems the mortgage insurance premium
to be adequate, asserting that the
value of premiums collected
surpasses the value
reversereview.com 8 TRR | 43
A Mortgagee Letter is released, announcing an increase in
origination fees to either $2,000 or 2 percent of the MCA.
HUD says it hopes the ability to generate higher revenue
will encourage more lenders to participate.
HUD releases another evaluation of the program,
noting loan volume is growing, borrowers are reporting
high levels of satisfaction and premium collections are
expected to exceed insurance claims.
HUD and AARP partner to train
and test counselors and establish
consistent HECM counseling
procedures and policies.
rules for HECM
for a special option in
which the borrower
is required to pay
only the upfront MIP
and the difference
between the original
appraised value and
the new appraised
value or FHA loan
The volume cap is raised again from
150,000 to 250,000 loans.
The first HECM refinances are made.
In the next three years, refinance loans
will constitute between 3 and 7 percent
of all HECMs originated.
Volume grows steadily as originations
reach 50,000 per year. AARP
estimates the potential market is about
13.2 million households.
Wall Street investors enter the secondary market. As
investors begin issuing private-label HECM securities, they give rise to a
competitive interest rate environment. An AARP study says the advent of
HMBS “suggests that lower prices and better products are likely to appear
within the next few years.”
The cap is raised again to 275,000 loans and a national loan limit of
$417,000 is established.
Volume continues to increase, totaling 84,000 loans
AARP conducts its first national survey of reverse mortgage borrowers and
concludes that most borrowers take out a loan to “improve their quality of
life and/or plan for emergencies.” In the coming years, surveys will indicate
a drastic change in borrower motivation.
The first Ginnie Mae
security is issued.
FHA says monthly adjustable rates can
be calculated using the one-month Libor.
Proprietary reverse volume peaks at
2,599 loans for a total of approximately
$2.6 billion in loans.
At this time, 87 percent of borrowers
are choosing a line of credit, with
only 13 percent choosing a monthly
disbursement plan. The median
borrower takes out 82 percent of
available funds within the first year.
A nationwide poll indicates that 72
percent of baby boomers have heard of
a reverse mortgage.
An AARP poll says 93
percent of borrowers
surveyed reported a good
experience with their loans.
reversereview.com 8 TRR | 45
The HECM for Purchase is
created. By the end of this year, 130
Purchase transactions were completed as
the program begins to catch on.
Congress increases the HECM loan limit to
The fixed-rate, lump-sum loan
becomes the dominant product
with more than 60 percent of
market share. The monthly adjustable
Libor becomes the most popular rate
Fannie Mae’s market share falls to just
10 percent as Ginnie Mae’s volume
skyrockets—it jumps from $1.36 billion in
2008 to $8.54 billion in one year’s time.
The number of HECM loans peaks at
115,000. HECM refinances also peak,
constituting 8.5 percent of all HECMs.
FHA lowers the principal
limits for HECMs by 10
percent, reducing borrower
Annual origination volume exceeds a record
100,000 loans, prompting HUD to deem 2008 a
“turning point” in HECM history. The surge is timely,
as the first baby boomers turn 62 this year.
The SAFE Act requires states to adopt uniform
procedures for licensing and registering HECM loan
The Housing Economic Recovery Act of 2008 places
limits on origination fees, establishes rules specifically
prohibiting cross-selling and sets forth guidelines to
promote counseling independence.
HECM insurance shifts from the General Insurance Fund
to the Mutual Mortgage Insurance Fund (MMI).
FHA says Ginnie Mae’s new fixed-rate product could be
structured as a closed-end loan.
The median borrower is now taking 88 percent
of loan proceeds within the first year, a 6
percent jump from the previous year.
The housing bubble bursts.
The HECM Saver is introduced!
The Coalition for Independent Seniors (CIS) is formed to
advocate for seniors looking to access their home equity.
Ginnie Mae sees a record year with nearly $11
billion in HMBS.
HUD implements the FIT tool to assist counselors in determining
A new study reveals that most HECM borrowers use the loan to
alleviate debt, a noted change from earlier surveys.
FHA increases the ongoing MIP from 0.5 percent to 1.25 percent
per year and lowers the interest rate floor for the first time in
HECM history from 5.5 to 5 percent.
Loan volume declines 30 percent.
Generation Mortgage Company launches the Generation Plus, a
jumbo market loan with a $6 million limit and a fixed-rate, lump-
sum requirement. It is the only proprietary loan on the market.
Dodd-Frank transfers regulatory authority of the HECM
program to the CFPB on July 21. Several months later,
Richard Cordray is appointed director of the CFPB in a recess
appointment that draws controversy.
Leading lenders Wells Fargo, Bank of America and MetLife
exit the reverse space.
Live Well Financial earns HMBS issuance, joining a short list
that is beginning to grow as Silvergate Bank and Security One
Lending follow suit. Meanwhile, Ginnie Mae tightens issuer
requirements, increasing net worth requirements from $1
million to $5 million, effectively limiting the number of lenders
that can issue.
RMS is purchased by Walter Investment Management Corp.
(WAC) for $120 million. WAC execs say they anticipate
“explosive” growth in the sector in the coming years.
The CFPB issues a report to Congress on the state of the
HECM program. The study states that further research is
needed because “reverse mortgages have the
potential to become a much more prominent
part of the financial landscape in the coming