7 Takeaways from FHA’s Annual Report to Congress

7 takeaways from FHA’s report to Congress

Each November our industry eagerly awaits the release of FHA’s Annual Report to Congress on the status of FHA’s Mutual Mortgage Insurance Fund, and more specifically, the HECM’s performance. Today we will look at seven key takeaways from that report.

First- Over half of all HECMs were originated in 10 states.

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Is the HECM Durable or a Drain?

Despite improvements, the HECM remains a reliable target of fiscal scrutiny

In its Fiscal Year, 2020 Financial Report the Department of Housing and Urban Development called out the HECM program saying it ‘undermines’ the financial soundness of FHA’s Mutual Mortgage Insurance Fund which backs both HECMs and traditional FHA loans. There have also been repeated statements that the program is being subsidized by traditional FHA mortgages- a claim that has been recently challenged in a recent blog post by New View Advisors writing,

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Podcast E644: HECM Program Improves Despite COVID

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HECM Program Improves Valuation in FY 2020

In the early spring, the American economy was nearly flattened by shut-downs and shelter in place orders across the nation as a result of the COVID-19 pandemic. Ironically- despite this massive market interruption, FHA’s most recent report to Congress on the financial status of FHA’s Mutual Mortgage Insurance Fund reveals significant improvement in its capital position. Is this surprising?

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BREAKING: FHA Annual Report with Narrated Video Summary

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FHA’s 2020 Report Shows Marked HECM Improvement

During NRMLA’s Virtual Annual meeting last week. Deputy Secretary of Housing and Urban Development Brian Montgomery’s comments last Tuesday reinforce a common theme heard since 2009. Viability. Referencing the continued strong demographic demand for HECMs Montgomery said, ‘so long as the program is built to be viable. He added, “In the end, we must protect seniors who depend on the HECM while ensuring our program’s financial strength can endure market cycles without taxpayers picking up the bill.”

In the effort to avoid the HECM requiring further subsidies to remain economically viable HUD & FHA have an established history of pulling to levers to reduce the program’s risk of future losses or insurance claims: reduced principal limit factors, and restructuring FHA mortgage insurance premiums. Other measures included the elimination of HECM products, financial underwriting requirements, and reducing the interest rate floor. Weeks following the unwelcome October 2017 HECM PLF cuts were enacted key one industry leader pointed to unaddressed problems in the ‘back-end’ of the program- specifically a backlog of unprocessed HECM loan assignments- this months prior to the appointment of FHA Commissioner Brian Montgomery. In May 2019 Montgomery announced the good news that the backlog of HECM claim assignments was clear and expressed cautious optimism of the program’s future financial viability.

While industry watchers were grateful that the logjam of assignments had been cleared, many expressed continued concerns of continued servicing issues from HUD’s appointed servicer citing abandoned properties, unauthorized occupancy of homes by relatives, and the deterioration of properties securing the loans that languish as REOs or real-estate owned properties.

However, in the short term, there’s good news.

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The 2019 HECM FHA Report to Congress

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What you need to know about FHA’s Report to Congress on the Home Equity Conversion Mortgage

[Download transcript]
Each year reverse mortgage lenders, originators and other mortgage market participants eagerly await the release of the Federal Housing Administration’s report to Congress on the financial status of the Mutual Mortgage Insurance Fund.

The good news is that the valuation of the HECM portion of FHA’s portfolio improved by over 50% in a single fiscal year from a negative valuation of -$13.63 billion in 2018 to a negative $5.92 billion in 2019. Why are we seeing such a rapid and marked improvement?

The comments of FHA Commissioner Brian Montgomery during a press call last Thursday may shed some light. “The improvements we’ve begun to put in place in the last two years to stem the losses of the reverse mortgage portfolio, aided by favorable economic conditions, are contributing to some improvements in our reverse mortgage portfolio.”

FHA’s MMI Fund Report Explained

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[Download full report] [View 1-minute video summary] [Full Actuarial Review
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A look behind the numbers and factors that shaped the FHA MMI Fund Report to Congress

A recap of FHA’s and HUD’s media conference call, an examination of HECM risks, and how the value of the fund is calculated.

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BREAKING: 2018 FHA HECM MMI Fund Summary

FHA Annual Report MMI HECM

[Download full report] [View press release summary] [Full Actuarial Review

Modest improvements and continued economic losses to the HECM portion of FHA’s MMI Fund

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