Despite Improvements a Call for HECM Structural Changes

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While the FY 2019 FHA Report shows significant improvement in the HECM program’s value, FHA calls more ‘structural changes’

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As we gather around the table this Thanksgiving there’s one thing to be grateful for: FHA’s most recent report to Congress showing a showing significant improvement in the federally-insured reverse mortgage’s economic value. This year’s valuation of the program reflects the fluid nature of assigning an economic value to the program being heavily influenced by larger market forces. These disparate valuations have drawn the attention of lawmakers since the HECM was moved to the Federal Housing Administration’s Mutual Mortgage Insurance Fund in 2009.

Beyond the improvements reflected in the report there’s a recurring subtext in the comments coming from the Federal Housing Administration. It is this: now is the time for the industry to expand its private loan offerings and reduce our near-total dependence on the government-backed Home Equity Conversion Mortgage. To paraphrase FHA Commissioner Brian Montgomery’s comments at NRMLA’s annual meeting as reported by Reverse Mortgage Daily ‘FHA must ensure that the HECM market is not overwhelmingly shouldered by the federal government’.

While the HECM’s financial footing may have improved some significant changes lie ahead. “We’ve seen the improvements [in the HECM program] over the past year, and we know that it is not enough, It is not self-sustaining, and while the state of the economy is important to the improvement, the time to fix the roof is when the sun is shining”, said FHA Commissioner Brian Montgomery during his keynote speech at NRMLA’s annual meeting in Nashville.

HUD Secretary committed to HECM changes

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Secretary Ben Carson’s prepared remarks for recent Senate hearing confirm HUD’s mission to enact key HECM reforms

While politicians squabble over the government’s role in making homeownership a reality, older homeowners who wish to use their home’s value to age in place were left out of the debate in the hearing room. That doesn’t mean the HECM program is not facing some significant changes. In his prepared remarks, Secretary Carson outlines three changes- two which would require Congressional approval, and the third a mere policy change by the Federal Housing Administration (FHA)…



HECM & Housing Finance Reforms

A summary of recommended HECM changes

In a statement issued last week we learned that the Department of Housing and Urban Development (HUD) in cooperation with the Treasury Department presented President Donald Trump with their plans for reforming the Nation’s housing finance system and the Home Equity Conversion Mortgage program.

To date, no hard deadlines have been announced for implementation of any specific recommendations included in the report. Administrative reforms can be enacted by the Department of Housing and Urban Development. Legislative reforms require the approval of Congress which is more problematic and unpredictable.

While we have focused primarily on the Home Equity Conversion Mortgage, the report recommends reforms for several facets of housing finance that fall under the supervision of the Federal Housing Administration.

Here is a summary of the recommended changes to the Home Equity Conversion Mortgage program as part of housing finance reform.


Housing Finance Reform Report

October changes?

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It’s that time of year when we hold our collective breath in the hopes that HUD will be gentle when it comes to enacting further changes to the Home Equity Conversion Mortgage.

There have been reports that the Financial Assessment has reduced defaults significantly, yet even so continued HECM claims from earlier books of business (reverse mortgages written in previous years) are likely to continue. In other words, no product changes can erase future losses in pending HECM loan terminations.

Major HECM changes typically come every two years. What should we anticipate in the final months of 2019? October 2017 brought us PLF reductions, single-tiered upfront FHA insurance premiums and a reduced interest rate floor from five to three percent. 2018 being the interim year brought us the Collateral Risk Assessment or the second appraisal rule.

There are no clues as to what further changes HUD may enact for the federally-insured reverse mortgages. However, we are interested in what you see as the most likely changes we will see enacted beginning in October.

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HECM Changes: Two risks remain

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The HECM’s philosophy shapes risk management
measures & future reforms

Few are asking an underlying question that will shape every effort to curb future losses or HECM claims against the Federal Housing Administration’s Mutual Mortgage Insurance Fund. That question is if the Home Equity Conversion Mortgage is a true mortgage loan or a social program. On its face many would answer- of course, it’s a mortgage loan. Mortgage loans by their very nature are designed to mitigate risk over time. The reverse mortgage being a collateralized loan solely dependent on the remaining equity at loan termination seeks to the reduce risk of losses by adjusting loan proceeds based on the age or life expectancy of the youngest borrower. But there are two other risk factors that may be eroding the economic value of the Home Equity Conversion Mortgage: the assumed annual 4% appreciation rate and deferred property maintenance

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BREAKING- HECM Report: Losses & Future Impact

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New Report Separates & Exposes HECM Liabilities

HUD’s most recent actuarial review and net value of the Home Equity Conversion Mortgage sent shockwaves through the reverse mortgage industry last week.

**Listen to this week’s podcast for the latest reverse mortgage news stories**
The 2017 Fiscal Year actuarial review of the HECM portion of FHA’s MMI fund showed a  present negative net worth of $14.2 billion and a standalone negative net worth of $14.5 billion. With the traditional or forward mortgage book of business generating a positive cash flow value of $1.89 billion, the rationale behind repeated calls by both lawmakers and even the support of HUD Secretary Ben Carson to remove the HECM from the MMI fund become increasingly clear.

One could safely assume that HUD was aware of these developments when it chose to enact further cutbacks to the HECM by decreasing lending ratios in the effort to prevent future losses. Referencing October 2nd changes HUD senior advisor Adolfo Marzol said, “The HECM program has been a substantial net economic drain on…

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