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Risk Management: A Fair Approach?


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With FHA’s mortgage portfolio showing and estimated negative $16 billion dollar balance after accounting for projected future losses the agency is in risk management mode. One, they have raised their annual insurance premiums for traditional borrowers and HECM borrowers two years ago.  But with the HECM program possibly facing reduced loan to value ratios,  or as we call them principal limit ratios, wouldn’t it be wise to reduce lending ratios for traditional FHA mortgage borrowers? Today, despite the housing crash and fragile market recovery, borrowers can pay a minimum of 3.5 percent down…


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  1. If HECM ongoing MIP is raised without an offsetting reduction in the PLFs, we will simply see more HECMs with balances due in excess of home value at termination and at the same time those HECMs which would otherwise end up in that condition at termination with higher balances due. It would also raise collectible MIP that would not have to reimbursed to the lender but this is a very inefficient and ineffective way to deal with the real problem.

    There are no easy answers in the case of the HECM product. HUD must lower PLFs on its fixed rate Standard insurable amounts. The best answer might be not to offer any loans using the fixed rate Standard model except in a hybrid Standard which will take some time to develop per HUD.

  2. We keep hearing that reverse mortgage defaults are happening because borrowers cannot pay their property taxes. Here’s a crazy idea…when someone reaches a certain age, say 80…they no longer should have to pay a property tax. They have been paying it for many, many, many years and now should be rewarded. It would relieve the burden most seniors have financially and substanially lower the reverse mortgage default rates.

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