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What if they move my cheese?



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Is FHA About To “Move The Cheese”?

With expected yet unknown changes to the HECM program, FHA may ‘move the cheese’. In today’s risk-adverse environment FHA is focusing on the fixed rate product. Publically they are concerned if it serves the HECM program’s original intent and purpose. But privately one could speculate that the full lump sum withdrawals of the fixed rate are seen as increasingly risky loans to be insured with accelerated negative amortization compared to their adjustable counterparts. For us the trick is not to stop or slow down while speculating on potential adjustments. A good reminder during times like these comes from the best-selling book “Who Moved My Cheese”.


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  1. My concern began when I was told by one originator that he only “sold” the fixed program and, “why would anyone sell anything else?”

    • You should be concerned Tom. Until we have mandated change, the lure of the yield on the fixed is just too enticing for many to resist. We need a fixed rate product that does not require the entire available funds to be taken- problem solved.

    • I agree that there are a large number of loan officers “selling” the fixed rate inappropriately. I feel that this loan should be used to pay off existing debt or mortgages or for purchase. It is too easy to prey upon a senior’s fear of adjustable rates than to take the time to fully explain the implications of the fixed and adjustable loans.
      I don’t think customers should take funds out until they need the the money, so they don’t have to watch the equity in their home disappear if the loan was not not done properly. It is not ethical to use interest rate fear to sell a reverse mortgage. These are not easily understood products and loan officers have a responsibility to fully explain the differences.
      I frankly would not want to face a family member who finds out Mom and Dad have no equity left and have spent the money they received.
      We also need to remember the implications for Medicaid should that senior need to go into a nursing home, especially if one person remains in the home.
      I think specific guidelines should be established for loan officers to avoid pushing a product that is not right for a customer. We are supposed to be trusted advisors doing what is right for our customers!

    • Then we have those who excuse the practice by saying: “But that is what seniors want!!” Yet many of those same originators said a few years ago: “Seniors prefer HELOCs and thirty year fully amortized mortgages until I explain how a HECM (adjustable rate Standards only back then) works. When properly explained HECMs sell themselves.”

      YET for most lenders and TPOs fixed rate Standard HECMs pay much more than adjustable rate HECMs of any kind. So guess what is not being offered or sometimes not presented to borrowers even when it is available? So combining the favorite idea of Gordon Gekko (“greed in all of its forms is good”) with the natural borrowing bias of seniors you have a few originators who fail to even discuss all of the products they provide.

      How extensive the problem is has yet to be determined but one thing is for sure California DRE licensees could pay some stiff fines and even the loss of their license if they are found to have violated the fiduciary standard and have put their interests in front of their clients. That is a big “no-no” for these licensees in particular.

  2. It is exactly the lack of surety in home appreciation which has produced the $2.8 Billion dollar negative position in the HECM fund this fiscal year. But IF that is the ending balance was the loss in this fiscal year over $4.1 Billion since the ending balance last year was a positive $1.358 Billion?

    Until the report is in our hands, the magnitude of the loss will be more a matter of conjecture than easily verifiable estimate. Losses of this magnitude or even transfers from other programs of over $2.2 Billion to the HECM fund in fiscal years 2010 or 2011 were the considerations of HECM heretics back in early 2005 when coming into the industry.

    The old and now worthless statement that the HECM program is self-funding or self-sustaining has now turned up as a fraud. As a conservative this was a big comeback to my more liberal friends (they just have not been mugged yet — you know a recent Republican is nothing more than a Democrat who just got mugged the other day).

    So is the HECM portion of the MMI Fund nearer to $5 Billion in estimated losses or $6.4 Billion? If Shannon is right about home appreciation, how much impact will that have on these losses? Could the projected losses simply go away and is that a reasonable expectation?

    Until the fiscal cliff issues are worked out and home values have had the opportunity to absorb the meaning of the expected changes, it is very difficult to say which direction home values will go in this Administration.

    The “cheese is a movin”” and where will it stop?

  3. In this instance, as is usually the case with FHA, it is more a matter of who “cut the cheese” rather than who moved the cheese. It’s just another stinking example of federal knee-jerk reaction. If HUD/FHA – and LENDERS – had allowed borrowers the fixed program without FORCING them to liguidate all available equity the program might not be facing such a large problem. Adjustable rate loans were part of the subprime debacle and received substantial attention and blame for the housing bust. The fact that fixed HECM’s came with this requirement is a blackmark on the program. After all the press, how can seniors be blamed for preferring the fixed rate.

    As for the solvency of the trust fund, I would encourage a full out audit. If speculative arithmetic is done, it could be argued that there should be more than half a trillion dollars in the fund. It might be nice to see what became of all the MI funds that poor into the trust find.

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