4 Ways to Slow HECM FHA Insurance Claims

Four ways to shore up the HECM BEFORE removing it from FHA’s Mutual Mortgage Insurance Fund

For nearly four years there have been repeated calls to remove the Home Equity Conversion Mortgage program. The HECM was placed into FHA’s insurance fund which backs both traditional and reverse loans in 2009. As HECMs originated at record-high values prior to the housing crash terminated or were placed into assignment many began to ask if the program should no longer be commingled with the larger fund. Last year the Trump Administration’s housing finance reform plan echoed this concern. 4 years earlier an Urban Institute study called to remove the HECM citing the program’s volatility in calculating the program’s valuation each year.  The report states “If we assume that half the HECM business is at a fixed rate and that each 1 percent rise or fall in rates causes a 12 percent fall or rise in the value of the loan, that would explain most of the drop in the value of the fund last year and much of the rise in the value of the HECM book of business this year”. With interest rates falling significantly in late 2019 and in 2020 we should expect an improved economic valuation of the HECM.

However, if Congress ultimately approves the move the following issues should first be addressed.

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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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The HECM May Have to Move Out of FHA’s MMI Fund

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Will the HECM move back to the General Insurance Fund?

HECM & General FHA MMI Fund
HECM & General FHA MMI Fund- Click to enlarge

While the overall FHA MMI (Mutual Mortgage Insurance) Fund is showing positive signs of recovery, the HECM portion of the fund has been much more volitaile than the traditional mortgage segment. With the latest actuarial report showing a negative  economic value some are calling for the HECM to be separated into its own fund

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The Reverse Mortgage Program

HUD says the reverse mortgage program is generating positive cash flow. That’s good for the short term but does not erase the future liabilities to the mutual mortgage insurance fund for previous years books of HECM business which is expected to result in claims for property values under the final loan balance and tax and insurance defaults. In it’s recent quarterly report to congress, HUD reports that the reverse mortgage program is…