FAT? Financial Assessment coming soon for RMs - HECMWorld.com Skip to content
Advertisement

FAT? Financial Assessment coming soon for RMs

Advertisement

[vimeo id=”20688594″ width=”601″ height=”338″]

Industry Leader Update Feb 7, 2011 from Shannon Hicks on Vimeo.

Share:

Leave a Comment

8 Comments

  1. When do you expect the FAT to be in effect?

    • Tom,
      Great question. What we’ve heard is we should expected at least a proposal of the assessment in the next 60 days. I would anticipate their would be some time allowed for industry input as well.

  2. I think that a tool to insure that the senior has capacity is necessary. The average borrower has been conditioned no differently than Pavlov’s dog that if their monthly obligation is covered than therefore so is their taxes & insurance. I would recommend that with the “Saver” product that since there is more equity withheld, an escrow account can be easily established internally. In the “Standard” product however, perhaps a product can be added to the current MI policy.
    At the end of the day, I think it important that our policy makers view these borrowers with the respect they deserve as seniors. Keeping them in their homes will provide them a longer life with greater integrity. Additionally, if these borrowers are removed from their homes, let’s take a look at market stability along with the additional financial burden these homeless seniors will impose upon the community.

  3. I wonder if it would work to have clients pay the taxes and insurance in escrow each month. This would assure that this items are paid. I think holding back money to pay the taxes and insurance who discourage a number of borrowers.

  4. Considering the sharp reductions in real estate values and the latest news that seems to indicate our economy is beginning to strengthen a simple and straightforward solution to tax and insurance challenges might be to simply re-calculate the software to increase the net cash available amount by 5%; then place that amount into an escrow account, at interest. In most cases that would guarantee that there would be no default for at least two years. Beginning with the 18th month into the mortgage the servicing lender should then begin a series of mailings notifying the borrower[s] of their impending need to come up with the funds for subsequent years. To keep the amount in perspective the overall loan could be held to no more than 65% including the additional 5%. Tell me why this wouldn’t work.

    • Mitch,

      What is so magical about 65%? Why not just reduce all principal limits by 5% and do what you are promoting? You are suggesting we increase risk for younger borrowers and diminish risk on older ones. Why would HUD underwrite any more risk on the younger borrowers? The risk of younger borrowers will not automatically be offset by less risk from older borrowers.

      If we would have done as you suggested in 2006 where would HUD be now on a senior who defaulted for the first time in late 2009. Let us say he took the net principal limit in a lump sum at funding and the principal limit before the 5% increase was exactly 60%. Well, if he lives in San Bernardino, his property is probably worth less than 50% of what it was at closing. He most likely owes 78% of the 2006 appraised value before considering any amounts unpaid through the defaults. Remember two years of taxes and insurance in 2006 was probably a little less than what was due for late 2009 and 2010 taxes and insurance. You would have added a new risk for HUD that today would be over 12% of the current value of the home.

      Who is most likely to default, someone underwater or an individual with a lot of equity? With less than 6% of borrowers in default, you really believe HUD should be taking on this risk?

      How much interest does an escrow account pay – 1%? The debt will be growing by the note interest rate plus 1.25%.

      Yeah, I think it is an economically bad idea which leaves HUD in a more vulnerable position.

  5. I read an article in Reverse Mortgage Daily that the Canadian product is alive and doing great. They have experienced such growth as to acknowlege that their Reverse Mortgage Product is now a “mainstream” product. Why aren’t we looking at their model instead of trying to reinvent the wheel?

  6. I oppose additional capacity or credit testing of any kind whatsoever. These products are not equity release, equity conversion, or for that matter any other euphemism; HECMs are asset based, nonrecourse, payment option, cash out mortgages (with a few special features) for qualifying seniors — plain and simple and should remain that way.

    According to the information provided by Sue Hunt at CredAbility, over 94% of HECM borrowers are current on their tax and insurance payments. Second a concerted effort to determine if the over 5% defaults are irreversible or not has just gotten underway. Third counseling has only recently been beefed up and we have yet to see the results of those efforts in default information. Fourth, as a senior, the current economy is the worst home appreciation mess I have personally lived through in my sixty some years.

    Let us wait until we actually have evidence, then we can talk about how to cure a problem which has headline risk but is hardly the problem faced by any other mortgage product. Yes, we will and should endure the problems which come with foreclosures. The only sure fire way to kill the default problem is to close down the HECM program; personally i find that objectionable.

    Since almost all of the efforts being expended in this regard are new, let’s learn the results as they occur, look at the percentage of defaults which are irreversible, look at the percentage of defaults which occur over the next twelve months, make a decision and review its results annually. Jumping in and trying to get things done too quickly generally gets them done regrettably.


Add a Comment

Your email address will not be published. Required fields are marked *

Must Read:

Advertisement
Advertisement
Advertisement

Recent Stories

Topics

Subscribe to join our World

Get the latest reverse mortgage news delivered straight to your inbox.Â