Fund’s Shortfall to Shape Policy

Shannon Hicks April 15, 2013 5

FHA says fund would be positive without HECM losses

Reverese Mortgage News

Reverese Mortgage News And The FHA Bailout

It was reported last week that FHA may need a $943 Million dollar bailout based on President Obama’s recently released 2014 budget. The cash infusion if granted would come from the US Treasury. Let’s be clear. These are not actual or realized losses but projected losses to FHA’s Mutual Mortgage Insurance fund in the next 30 years. One would think that with 95% Loan to Value financing despite falling home values traditional mortgage were the culprit. Unfortunately it appears that the reverse mortgage program is painted as the primary culprit

 

 

5 Comments »

  1. Steve Sayetta April 15, 2013 at 4:56 am - Reply

    Home values is the major contributor by a mile but let’s not forget the program’s requirement that standard fixed rate borrowers must borrow the maximum loan amount offered. Understanding these two facts HUD should take a wait and see attitude. Only change to consider now should be to force escrowing taxes and insurance. This way HUD can be on top of this potntial issue.

  2. Nanci Sloan Cummings April 15, 2013 at 9:10 am - Reply

    More bashing of the reverse product as the problem—negative press over ‘possibilities’ (by Galante herself) is beyond disappointing.

  3. CLIFF RIDDLE April 15, 2013 at 10:25 am - Reply

    THEY CAN’T ADD 2 AND 2 ,,,,,,
    SOUNDS LIKE SOMEBODY IS TRYING TO PAINT A VERY BAD PICTURE FOR THE R.. M. s

  4. The_Cynic April 15, 2013 at 10:43 am - Reply

    Does anyone really believe the problem is the housing market? Let us not forget the facts. The falling values only made the dire predictions of a continued housing problem in 2009 the probable outcome of a reckless HECM policy during fiscal 2009, 2010, 2011, 2012 and half of 2013.

    HUD was told in Spring 2009 that the HECM program was in deep trouble by OMB. New View Advisors demonstrated how the HECM portion of the MMI was already in deep trouble despite only being in operation for 6 months. New View insisted the HECM model was obsolete and needed change to avoid the pending demise of the program. Their blogs on the subject are still on their website.

    New View had a superior projecting model that HUD refused to acknowledge and employ. The picture for future home values was not bright in Spring 2009 by any stretch of the imagination but did that stop the endorsement of fixed rate HECMs (before there were Savers)?

    Then there were those who advocated the elimination of the fixed rate HECM from late 2006 to the end of March. The concept of a closed ended product with high PLFs made absolutely no sense despite the claims of many at FHA and throughout the industry that the message of needing to end fixed rate HECMs was nothing more than the foolish talk of the unlearned and unknowing. It was a policy decision full of risk which should have never been taken on by FHA in the first place. A hybrid would have been a far superior decision but there was no appetite for the product expect perhaps with consumers.

    But now we hear about future borrowers being harmed by the excessive losses of the past. That is not the issue. The issue is why did forward mortgage borrowers have to pay over $2.2 billion to stabilize a reckless HECM program during fiscal 2010 and 2011. Their surplus will still be covering the HECM losses through fiscal 2013 AND beyond.

  5. James E. Veale, CPA, MBT April 15, 2013 at 11:37 am - Reply

    I hate to correct someone who speaks as much as Shannon. However, Ms. Galante is not predicting the negative net position of the HECM portion of the MMI Fund will be $4.2 billion on September 30, 2013. She is predicting it will be over $5.2 billion negative.

    What this is telling us is that since October 1, 2008, the HECM program has not been self sustaining by over $7.5 billion. Further it will be over $9.2 short of meeting its 2% capital reserve requirement.

    While the numbers at the end of the year should look like the HECM portion of the MMI Fund is only $7 billion short of meeting the 2% capital reserve requirement, the real number due to over $2.2 billion in transfers from other MMI Fund Programs is that it is $9.2 billion short of that goal based on its own operations.

    It is getting old to hear about projected versus realized losses. Congress does not hold the program to the idea that its actual losses must be met by MIP revenue rather it requires the 2% capital reserve be met based on the annually reported projections of the outside actuaries. When someone is in trouble they always like to point to another way of looking at the problem.

    If we are to keep the program our concern should always be focused on the projections of HUD and those of the actuaries. Anything else is a little more than a PR ploy.

    The views expressed are not necessarily those of Security One Lending or its affiliates.

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