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FHA Fund Update Reveals Longterm Projected Losses

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FHA’s Recent Report Paints a Sobering Picture

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While it may have been unwelcome news, the recent announcement of FHA losses for the HECM portfolio should come as no surprise as loans terminate from the bygone era of a more generous HECM program. FHA’s Annual Report to Congress, published November 15th, coincided with last week’s gathering of industry professionals in Chicago at the National Reverse Mortgage Lenders Association’s annual meeting.

As the Federal Housing Administration began substantial reforms to reduce the risk of the HECM program, many industry participants were critical of the changes which restricted access to the program with lowered lending ratios, fist-year distributions limits, and financial assessment underwriting guidelines. However, looking at the cohort of HECM loans in 2009 through 2010, it becomes readily apparent why the agency took such rigorous measures to change the underlying assumptions of the reverse mortgage as the report shows the forward mortgage portfolio is shows an economic value of $35 billion, while the HECM portfolio is a liability with its economic valuation of a negative $7.7 billion. The actuarial review, upon which the report is based upon…

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  1. The loss for the fiscal year 2016 was $14.5 billion which is deplorable. Rather than commenting on this massive loss, here are the comments of two former FHA Commissioners.

    Mr. Brian Collins states the following in the 11/17/2016 issue of the National Mortgage News (NWN): “‘It is certainly time to have a policy discussion around moving the HECM program from the Mutual Mortgage Insurance Fund back into the General Insurance/Special Risk Insurance Fund,’ said Brian Montgomery, vice chairman of The Collingwood Group…” and former FHA Commissioner.

    Mr. Collins quotes Mr. Stevens in that same article of NMN as saying: “”An important subtext to this report is the continued volatility in the HECM book of business, which this year turned negative, dragging down the overall value of the Mutual Mortgage Insurance Fund,’ said David Stevens, the president and chief executive officer of the Mortgage Bankers Association. ‘Given the importance of FHA to low- and moderate-income and first-time homebuyers, the next administration may want to look at accounting for the two programs individually in order to isolate the critically important forward book from the wild swings of the HECM fund.” The title of the article is “Troubled FHA Reverse Mortgage Program May Prevent More Premium Cuts.” Mr. Stevens is a former FHA Commissioner.

    The article can be found at:

    http://www.nationalmortgagenews.com/news/servicing/troubled-fha-reverse-mortgage-program-may-prevent-more-premium-cuts-1091081-1.html


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