What just happened? A look behind the scenes.

Shannon Hicks December 24, 2012 7

Even though HUD telegraphed their intentions to make substantial changes to the reverse mortgage program many are still in a state of shock. Here’s brief look behind the scenes courtesy of NRMLA’s special bulletin. First, our industry has been very active in working with those shaping policies for the HECM program. NRMLA and others have been working tirelessly. With a projected losses in the insurance fund  and specter of a possible moratorium action had to be taken.

Leave a video response here.

7 Comments »

  1. Bill Danner December 24, 2012 at 8:16 am - Reply

    I can see no viable reason to still not offer the H4P fixed product. With the proper expectations set at the time of the, counseling, sale, and closing, delinquencies should not occur…EVER!

    • James E. Veale, CPA, MBT December 27, 2012 at 5:22 pm - Reply

      The types of HECMs available for a Traditional HECM are available for HECMs for Purchase. There will still be a fixed rate Saver after January 31, 2013. I was not aware that there was anything named the fixed rate HECM for Purchase.

  2. Robin Faison December 24, 2012 at 8:43 am - Reply

    I still believe that the “suspension” of the fixed rate will do more harm than good. Without the fixed rate product and the zero closing costs applied, many of my recent borrowers would not have been able to get themselves out of their forward mortgage payment, thus reducing expenses and increasing income to PAY their taxes and insurance. Equaling possible foreclosure on their home (eventually with their current loan.)
    The standard fixed was just recently implemented coinciding with market downturn. I believe the data is skewed and that these “fixes” are horribly misguided.
    If the government and our policy makers are truly trying to help the underserved and financially challenged in this country, this is definitely not the way to do it.
    Where are the billions of dollars of bailouts for the banks? Do we see the large lenders modifying loans for our potential HECM clients? Many of my clients have banged on the doors of BOA, WF etc trying to get their loans modified to no avail due to fixed incomes.
    So, I see more travesty ahead for some of the HECM clients that really need this loan (could not do it) with new the set asides, having no closing cost credits,and new underwiting of credit. (most of my clients have impeccable credit, others are not as fortunate).
    Everyone that is reading this, please call your congress people and let them know how what is happening, what I consider small, pinpointed attack on our mature population is very, very wrong. 2.9 Billion in the red for the HECM program? Keeping the saver fixed with .01% upfront MIP? what is that? No mip to the fund? How does this help the FHA insurance fund? These saver borrowers are not the typical borrower/s that need this loan. They want it.
    The analysis of this is so illogical it makes my blood boil. I have been in this business since 2004. I have seen quite a few changes all not really harming the program.
    These politicians OUR EMPLOYEES, are making decisions without complete knowledge of the repercussions of the populace that they are serving.
    ” Let them sell their homes and rent” is what I have heard quoted from the Senator Corker. If I am misquoting I apologize and retract.
    But, sitting up on the hill and not in the trenches of our country is not where to make important decisions that impact a large portion of our society.
    Catherine the Great, Empress of Russia, 1729- 1796, was the most renowned and the longest-ruling female leader of Russia, completes this condemnnation with an excerpt of what she was dealing with back then at a Senate meeting:
    “Catherine quickly discovered that in the Senate there were heavy layers of ignorance.One morning when the senators were discussing a distant part of the Empire, it became apparent that none of them had any idea where the territory lay. Catherine suggested looking at a map.”
    Robin Faison

    • James E. Veale, CPA, MBT December 27, 2012 at 6:13 pm - Reply

      Ms. Faison,

      What you suggest is a specific social welfare program for senior homeowners. Yet there are many seniors in need who have no home. Should the federal government provide some welfare program that is purely based on home ownership? We tried using that standard in describing those eligible to vote in the Constitution a few centuries ago.

      As stated in my comment below, the real issue is not $2.8 billion in losses, it is a $6 billion funding problem. The total number of active and outstanding HECMs in the MMI Fund was about 300,000 as of September 30, 2012. That means on a present value net loss basis, the average HECM is estimated as costing American taxpayers $20,000 per HECM borrower. If we excluded those who were Saver borrowers and those who have taken less than 50% from their line of credit (a large number of HECMs endorsed in fiscal 2009 and much lower thereafter), the loss is likely much closer to $32,000 than $20,000 per HECM which will terminate in the hole.

      Should Saver borrowers be harmed due to their lack of risk to the HECM program? Besides there are so few of them. Why should they pay 1.99% more based on the MCA in upfront MIP? They still pay ongoing MIP. I fully support providing less risky HECMs to the “not-quite-affluent” or “mass affluent.” Many of them may not need cash flow assistance now but could do better if they took full advantage of this program with no real threat to FHA.

      I am opposed to any taxpayer supplement to the HECM program. Industry leaders have falsely bragged to members of Congress that the HECM is self-sustaining. That may have been true for HECMs endorsed before October 1, 2008, but it has not been true since then. By fiscal 2010, HUD supplemented the HECM portion of the MMI Fund with $1.7 billion from other just as worthy HUD single family programs. If HUD had not done that plus put in another $0.525 billion in fiscal 2011, the negative balance in the HECM portion of the MMI Fund would have been well over $5 billion (including lower fund earnings).

      As to TARP, unfortunately it was necessary to pump up a failing financial services industry serving hundreds of millions in the US alone. The money at risk was less than $3,000 per US user and much of that has been repaid. As to the HECM program the loss is much greater per beneficiary and much of it will most likely be lost.

      If we can no longer help the financially destitute, we are lenders, not social workers. Let us be thankful that insured PLFs were not cut as well. The financially destitute senior homeowners we have helped have been joyous events but again we are lenders first, not social workers. I will still continue to grieve with the seniors I cannot help just like I do now. This is not a happy solution but a necessary one.

  3. James E. Veale, CPA, MBT December 24, 2012 at 10:12 am - Reply

    The letter from the Acting FHA Commissioner to Senator Corker answered many questions and also opened up areas to new questions. If the Acting Commissioner as she has stated ceases the fixed rate Standard, that would not only be clear and definite but also quite constructive. We need 1) the program, 2) the HECM portion of the MMI Fund having a healthy and POSITIVE balance (not $2.8 billion negative), and 3) growing endorsement numbers.

    More seniors than ever before need this product, not fewer as the ever decreasing endorsement numbers falsely seem to indicate. We need this product to reach more seniors not fewer even if that means some loss in revenues and some of the house rich but cash destitute left entirely out of the program.

    The HECM program was not designed by Congress, President Reagan, or Secretary Kemp to be a social welfare program. It was designed to help provide cash flow deeper into retirement, not save senior homeowners from foreclosure. Sometimes we can achieve both objectives (the best result) and sometimes we cannot (an unavoidable but necessary result). If the HECM program should be a social welfare program then let Congress fund it as such but nothing in the law gives that impression. It is because of this social welfare attitude that the program is in as much trouble as it is.

    As one outspoken Democratic Senator reasoned not that many years ago, this program cannot be allowed to become a program supported by American taxpayers. The net asset position of the HECM program does not need just to go back to zero; it needs to meet the minimum reserve requirements placed on the entire MMI Fund by Congress. It also needs to return the over $2.2 billion (plus earnings) allocated to it from other parts of the MMI Fund. The total amount needed is not $2.8 billion but about $6 billion.

    But one thing is certain, the current fiscal bleeding MUST stop. Eliminating the fixed rate Standard is an excellent response. It is very discouraging when we knowingly have to create HECMs which will with little question end up in T & I default; that needs to change.

    As to financial assessment and T & I set asides, some have stated the assessment will be light but that the T & I will be mandatory for all but as of yet the number of years of T & I which must be set aside has not been disclosed. There is some thought that HUD would require the financial information required on the Form 1009 to be verified and the form increased for additional information to be verified and from the verified information would gather data and modify its T & I set aside position a few years after the mandatory policy is implemented.

  4. Carlos Camargo December 24, 2012 at 10:35 am - Reply

    Shannon, Can you further elaborate on the details of what just happened or where we can read more about the changes? I have only seen your video and one newswire about the proposed moratoriam. Is this change going to apply to new originations on Jan. 31st or did the letter state that the Standard Fixed Rate HECM loans have to close and fund by Jan 31st?

Leave A Response »