Future risks, past losses, and the call to move out the MMI fund
If there is one thing surgeons are skilled at it is stopping blood loss during surgery. The Home Equity Conversion Mortgage has come under increased scrutiny with HUD’s annual reports to Congress and the ensuing actuarial reports showing wild and unpredictable swings in the economic value of the reverse mortgage program. In his recent comments before the House of Representatives, HUD Secretary Dr. Ben Carson states “the changes we’ve made will sort of stop the bleeding in terms of [new reverse mortgages]”. While recent HECM reforms will help reduce the likelihood of future losses, what can we expect in the near future?
As an equity-based loan that relied heavily on steady home appreciation rates to offset future risks, the reverse mortgage stood to suffer significant losses as a result of the housing crash and increased defaults for non-payment of property charges. While these losses are baked into the HECM program, few have asked or even opined if recent reforms would help erase past losses already incurred.
All which brings us to moving the HECM from the Mutual Mortgage Insurance Fund to the General Insurance/Special Risk fund, where it once resided. While the move was promoted by a few think tanks, few officials or politicians publicly made the call for the move. The tide has shifted.