More Questions Than Answers

Shannon Hicks December 8, 2017 5

ePath 100K RM leads

As HECM losses continue serious questions require answers

There’s no question that it’s been a tumultuous period for the Home Equity Conversion Mortgage industry. Lenders, brokers, and originators alike have been left scratching their heads trying to ascertain not only the rationale behind recent changes but more importantly why previous lending ratio reductions and the financial assessment have not stemmed the tide of mounting losses.

After the enactment of the Financial Assessment and proposed final rules, some felt that perhaps our industry would enjoy a respite from another major overhaul. However more substantial changes were being quietly shaped inside the hallways of HUD as the agency was grappling with the early numbers and mounting losses ultimate reported in the actuarial report released last month…

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  1. The_Cynic December 8, 2017 at 10:41 am - Reply

    While it is clear that losses in the MMI Fund will be calmed down by lower PLFs and increasing upfront MIP over ongoing MIP, it is not clear what will calm losses down before the end of the next decade. Shannon is right we need to diagnose what is REALLY causing the losses and what can be done to calm things down. Even NRMLA which should be NOT lost on this matter seems the second most lost on this matter player, following FHA.

    Financial assessment was supposed to do a whole lot in putting out the burning rage, yet the NPV for future cash flows from the fiscal 2017 book of business as determined HUD shows a shocking negative $2 billion value. It is doubtful if a single HECM endorsed last fiscal year did not go through financial assessment.

    The negative NPV per HECM for the active HECMs endorsed during fiscal year 2016 in the MMI Fund as of 9/30/207 is 30% than negative those endorsed in fiscal 2015 and still active in the MMI Fund as of 9/30/2017. Yet there are more active HECMs from the 2015 endorsement vintage than the 2016 endorsement vintage still active in the MMI Fund as of 9/30/2017. All but a small percentage of HECMs endorsed in fiscal 2016 went through financial assessment while very few of the HECMs endorsed in fiscal 2015 did. So why is the loss more pronounced in fiscal year 2016 active HECMs than fiscal year 2015 active HECMs?

    Using the logic of one vendor which has over and over again declared that financial assessment is getting better and better needs to modify that claim by saying that financial assessment is getting better and better at creating more and more losses in the MMI Fund!!

  2. Don Opeka December 11, 2017 at 7:49 am - Reply

    As a 71 year old originator with my onw Reverse Mortgage, the perspective changes. I’ve closed more than 1,000 loans, forward and reverse, purchase and refinance, conventional, FHA, and VA. From what I see, the losses on Reverse Mortgages are being addressed with the same tools one would use with a forward mortgage. Reverse Mortgages, and Reverse Mortgage borrowers are different. Until the people writing the rules take the time to understand the differences, they will continue to have complaints and suffer losses. The important needed changes are at application and servicing, not underwriting. Some problems become obvious because we follow loans from beginning to end. We know and follow our borrowers. The people writing the rules are making assumptions that simply are not true.

    • The_Cynic December 11, 2017 at 2:41 pm - Reply


      Your traditional reverse mortgage analysis is so vague as to be of little help at all. Where we agree is that what goes wrong with HECMs rarely happens with mortgages which are NOT reverse mortgages so applying forward mortgage cures to reverse mortgage woes is fruitless.

      The perceptions of reverse mortgage originators are generally myopic due to the small area they deal in. While you personally bring anecdotes to bear, they are of little value when determining what is going on with the collateral and mortgages in the industry as a whole.

      As to your personal success, I wish you the best.

  3. Mike Banner December 11, 2017 at 12:03 pm - Reply

    There is no doubt we must stop the bleeding.

    I do have a question though:

    Is it possible that the continued losses in the MIP Fund are still being caused by the loans we closed prior to FA being established?

    FA is just a little over 2 years old. Keeping in mind no lender would have closed a reverse mortgage if the client wasn’t current on their taxes I find it hard to believe there could have been enough defaults “post FA” to cause the MI Fund to continue to suffer losses.

    The defaults we are suffering from in 2016 & 2017 have to be from loans written several years ago. (New loans just can’t default that quickly…

    Just an observation…

  4. Scott Johnson December 13, 2017 at 6:43 am - Reply

    HUD needs to turn around and look at their back end. The mounds of red tap that regulate the foreclosure process is the main problem. There is nothing business like about a government foreclosure. Cost is not the object or even a consideration. And some states make this process ridiculous. HUD need to streamline the process and get the home back on the market and stop wasting the MMI funds. Realtors tell me all the time housing inventory is very low. HUD need to think this through and satisfy housing market demand.

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