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Are HECM Changes Paying Off?


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FHA’s Recent Report to Congress on Insurance Fund

reverse mortgage newsFHA’s commissioner Carol Galante outlined the improved health of the Federal Housing Administrations insurance fund in a recent letter to Congress. Referring to a recent actuarial review of FHA’s Mutual Mortgage Insurance fund the Commissioner wrote “Recovery rates have substantially improved and the credit quality of our most recent books of business remains at historically high levels – keeping FHA on the right track for the future.” FHA found itself with the thankless task of cleaning up liabilities in the wake of the housing crash which led to ballooning future liabilities or a negative economic value in the mutual mortgage insurance fund. HUD states the turnaround of the HECM portion of the fund is attributable to three primary factors: the economy, mandatory cash appropriation from the treasury and a transfer from the forward loan portfolio. First the economy. Lower interest rates slow the loan balance or amortization of HECM loans. FHA calculates a net positive effect of 3.6 billion dollars. Also rising home values reduce the likelihood of 


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  1. Management of any organization rarely says that the results of their work are a disaster. Most of the time they try to hide such problems through window dressing, putting blame on others, normally, their predecessors, or similar deflective actions.

    Taking out of the HECM portion of the MMI Fund all of the $6.546 billion HUD transferred from other MMI Fund programs since fiscal 2010 and the $1.686 billion HUD took out of the Treasury in September 2013, the projected cumulative net losses on HECMs endorsed after 9/30/2008 and before 10/1/2013 total $1.691 billion. What we now understand is that current HUD management is great at window dressing.

    So how should we look at HUD management since the President took office in early 2009? Since HUD Secretary Montgomery, a temporary holdover from the Bush Administration, stayed on until the President could get his team in place, all of the results from operations during the first fiscal year HECMs were accounted for in the MMI Fund must be placed on the back of the Bush Administration. As of 9/30/2009, the actuaries reported that the HECM portion of the MMI Fund showed a positive net position of $909 million. Since the net position of the HECM portion of the MMI Fund is now $1.961 billion negative, the Obama Administration is responsible for net losses totaling $2.870 billion related to the HECMs accounted for by the MMI Fund.

    When new endorsements are projected to create losses at their termination, it is naive to promote the idea that increased origination of those built-in loss HECMs will help the MMI Fund. That kind of thinking is why the HECM program cannot support itself. Yet as a member of the industry it is great to see HUD supporting the growth of the HECM program.

    The term “technical defaults” is being twisted to mean all HECM T & I payment defaults; however, that is a very incorrect use of that term. “Technical defaults” as that term has been commonly used is a payment default which occurred despite the borrower having sufficient assets to pay those bills but intentionally (thus the adjective “technical”) chose not to because the borrower did not want to put money into maintaining or keeping a home which is underwater, i. e., the balance due on all liens including mortgages exceeds the value of the underlying collateral. The vast majority of the T & I payment defaults we see with HECMs is a direct result of seniors lacking the funds needed to meet necessities and at the same time pay for property charges like T & I; those defaults are in no way technical defaults.

    Another misunderstood concept is that HUD was required to take $1.686 billion out of Treasury as of the end of last fiscal year. The law allows HUD to do that without any appropriation from Congress. So it is not a requirement to take those funds but something HUD is permitted to do.

    There are a few things we can now say about the current HUD management. First they are very slow to react to adversity. It took four years for the Administration to approach Congress about the need to have more authority to right the HECM ship. It is great at window dressing, i. e., covering up problems in the HECM program through its transfers of funds from other sources. We also see that HUD management is committed to the success of the HECM program either through its belief in it or its fear of having its HECM management failures exposed. Finally we see that after waiting far too long, HUD management overacts in modifying HECMs so that they are less of a problem to the MMI Fund.

  2. The cynic title fits well.

    • alex,

      Although the tone may be cynical, what do you find at fault in the facts?

      As to the numbers, The Cynic is on point. The HECM program simply cannot do well in times when home values in the regions where HECMs are most concentrated are dropping or increasing at least a rate which is needed to avoid projected losses.

      HECMs are not without risk to taxpayers or under this administration to other MMI Fund programs. Perhaps the somewhat questionable $8.2 billion funding is sufficient to allow the program to avoid losses in the next few decades.

      One thing is for sure, not only have the operational and administrative aspects of the HECM program always been directly subsidized by taxpayer dollars but now even the loss reimbursement portion of the HECM program is being supported directly by both taxpayer dollars and other MMI Fund programs.

      May 2014 be a joyous and successful year for all.

      Jim Veale

  3. Thank you again for your comments. They always get the rest of us thinking about subjects we need to put time into. As far as “required to take funds” vs. elected to do so can be interpreted as required to keep the program and funds stable. As for tax payers always contributing; there is nothing wrong, at least to me, for our taxes to help keep the community together. It always ends up helping the entire country as a whole.
    Let’s all have a great 2014!

    • Jay,

      The right to take funds has not changed in the last three fiscal years. If taking funds out of Treasury to balance the MMI Fund was a matter of being required, HUD should have taken $16.3 billion from Treasury in September 2012. The decision to forego the amounts available then was a calculated decision based on the political environment at that time just as it was in September 2013.

      Being naive is hardly a virtue in understanding the transactions within the MMI Fund. However, the choice is yours. The ostrich approach is that recommended by many in our industry.

      The problem with the fact of taxpayer support is the myth spread by so many in our industry. To many seniors, taxpayer support is a real concern. They do not want to eat from the trough of Big Government. Seniors have earned that right as well and they certainly should not be lied to.

      We should be supplying factual and truthful information not some fantasized or fanciful myth about taxpayers having never put a dime into the HECM program. That was a lie from day one despite what some industry leaders have been propagating for well over one decade, if not two. Like all FHA programs, HECMs are and always have been taxpayer supported.

      May 2014 be a great year not only in volume and revenues but also in strengthening and increasing our ethical standards.

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