Unwinding Legacy HECM Issues

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Back-end issues such as occupancy fraud, delayed foreclosures, and deferred maintenance pose risks

As a wise man once told me, “it’s easy to wind something up. It’s quite another thing to unwind it”. Since 2013 the FHA and HUD have taken a number of steps to try to unwind the components of the Home Equity Conversion Mortgage that have led to increased claims against FHA’s insurance fund and those that negatively impact its projected future economic value of the program.

Just how both agencies will continue to address this momentous challenge remains to be seen. While the increasing losses from HECMs are troubling, it should be noted that $73 billion of the $1.2 trillion of the insurance in-force in FHA’s MMI fund are HECMs. That is 6% of all loans insured by FHA are HECM loans according to a report last month from the Congressional Research Service. The problem is that even that small cohort of HECM loans can have a significant impact on the overall fund.

While most may agree the most problematic issues in the HECM warranted correction, many are concerned that future policy changes are based on actuarial reviews. Reviews that have historically shown significant volatility and wild swings in their valuation of the program.

Larger issues may be lurking in the back end of the HECM portfolio which could be significantly contributing to continued insurance claims. Issues such as delayed foreclosures and conveyances to FHA, deteriorating property conditions and occupancy fraud in cases where the last borrower has died or moved. These require timely remedies. [download transcript] 

Circling the Wagons

Circling the wagons. It’s something our early pioneers did to protect themselves and their party from attack during their perilous journey to settle the western frontier. Not unlike the settlers we must take proactive measures to protect our hard-earned applicants from fear, doubts and mostly confusion during one of the most critical phases of reverse mortgage origination: the counseling process.

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