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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Why California is the future of the HECM Fund

Why California will shape the future of the HECM in FHA’s Insurance Fund

A few things are undeniable and established truths; one being the valuation of FHA’s Mutual Mortgage Insurance Fund is extremely sensitive to even the most modest changes in home price appreciation. Don’t blame the messenger. Blame the math. The mathematical assumptions where a mere 1 drop in home appreciation reduces FHA’s insurances fund’s capitalization ratio by 1.3%. Applying a hypothetical stress test FHA’s report to Congress reveals market conditions similar to 2007 would completely erase the Mutual Mortgage Insurance Fund’s positive six-percent capitalization ratio down to a negative .63 percent.  Knowing this it’s easier to understand the agency’s reluctance to grant repeated requests from housing lobbyists to further reduce premiums. It’s clear that a higher capitalization ratio is needed to weather the storms of economic uncertainty.

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Podcast E638: Time to Move Out of MMI Fund

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New FHA Commissioner calls  to remove HECM from FHA MMI Fund

The HECM likely needs to be removed from FHA’s Mutual Mortgage Insurance Fund to stop traditional mortgage borrowers from subsidizing losses.

Other Stories:

  • The DOJ files complaint against lender for decade-old HECMS

  • New waivers give non-borrowing-spouses a reprieve 

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HECM Changes in 2019: Inspector General’s Report Provides Clues

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Inspector General report points to specific risks

reverse mortgage newsIn October HUD’s Office of the Inspector General released their report which telegraphs what changes to the HECM we may see in 2019.

If you were to ask ten HECM professionals what their outlook was for 2019, you would likely get ten different answers. Of all the responses one were to receive the most honest and realistic would be- expect more change.

There’s been much talk in the media of Inspector Generals recently- most of it centered on the political war that rages in the wake of alleged Russian collusion in the Trump administration and also the Inspector General (IG) investigations into the Department of Justice and the intelligence community. However, what most may not know is that all major federal agencies have a functioning IG who serve as watchdogs to ensure that the best interests of the government and taxpayers are served. On October 15, 2018, the U.S. Department of Housing and Urban Development Inspector General’s office released their report outlining 6 challenges facing the agency.

Of the six the most troubling and problematic are the continued risks to FHA’s Mutual Mortgage Insurance fund, which backs both HECM and traditional FHA loans. The OIG states that HUD is presently lacks sufficient safeguards to prevent loan servicers that fail to meet foreclosure and conveyance deadlines from incurring holding costs which are passed onto HUD. It is estimated these delays cost the agency $2.23 billion in ‘unreasonable and unnecessary’ holding costs in a five year period. While not specifically mentioning HECMs it’s not a stretch to believe these issues plague both traditional and HECM loans. This comes as no surprise considering our recent report and an article in HousingWire which reveals a number of illegitimate occupants continue to remain in properties with a reverse mortgage; many times years after the borrower has moved, passed away, or in some cases even rented the property to another party. In other instances, heirs have reported considerable delays in getting a deed in lieu of foreclosure processed or waiting over 5 months for an appraiser to come to the property so the family can arrange for a purchase. While noncompliant occupancy of HECM properties is not specifically addressed, the report does cite delayed property claim reporting by servicers and/or lenders.

There’s no question that the HECM is flashing brightly on the radar of government watchdogs as evidenced in the report which reveals large losses attributed to the reverse mortgages… [download transcript]

Tip of the Iceberg: HECM Occupancy Abuses

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HECM abuses when borrower no longer occupies the property pose risk to FHA’s MMI fund

reverse mortgage newsHow quickly are HECM properties sold or called due and payable when the last borrower has died or moved out? More importantly, how many properties with a HECM are sitting on the books for years while the borrower’s heirs or unauthorized tenants remain in the house; in many cases for years?

It’s not often during my show prep that I strike gold, but this week was the exception finding an intriguing and unsettling article by Mike Branson. It details where a significant portion of our HECM losses may be coming from. Mike is the CEO and owner of All Reverse Mortgage. He has over 40 years experience in mortgage banking and also has served as an expert witness for the FBI in mortgage fraud cases. That particular experience plus numerous questions he has fielded has raised some very serious concerns which we will address here today. A very timely topic since the HECM may be facing additional changes this year.