Can recent HECM reforms ever repay the losses of the past?
An honest examination of the reverse mortgage would recognize that many loans originated prior to 2013, could easily become a future liability. Case and point the now defunct ‘Standard Fixed Rate HECM’. Introduced in the midst of an overheating housing market. With needs-based borrowers comprising a significant portion of HECM loans taken, the seeds of trouble sown came to fruition as housing values plummeted, causing many of these loans to ‘cross-over’ where the outstanding loan balance exceed the home’s value. Subsequent insurance claims spiked.
Complicating matters is the method used to calculate the HECM program’s economic value which swung wildly from a positive valuation of $6.8 billion in 2015, to a negative value of $7.7 billion for the fiscal year 2016.
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