3 Comments

1. 

   The_Critic

   May 1, 2011 at 11:57 pm

   I find it unbelievable that any adviser WOULD tell a viewer without knowing the composition of the portfolio that a HECM is better than selling off shares of stock. Just last week many of us were complaining about the advice David Bach gave on the NBC Today Show against using HECM proceeds to make home repairs. Remember the accolades for Bernie Madoff before his confession? Prognosticators rarely give an accounting for their “sage” (meaning charismatic) advice.

   Leveraging the home to hold onto shares is hardly in and of itself a winning strategy. Yes, GenWorth has its studies but there were tons of studies explaining how in the present (2005 and early 2006) market structure there was little way that the housing market would tumble erratically at any time before 2010 and most likely beyond — if ever. Those studies proved to result in little more than the unnecessary cutting down of trees to supply paper for worthless written conjecture justifying well intended but greatly misguided financial strategies.

   Could the equities’ market correct or fall and if so, for when, by how much, and for how long? The trouble is recognizing a downward trend and then reacting quickly and prudently. For well over a decade neither the NASDAQ nor the Dow has reached their former lofty heights. So if one could have had an index fund back then and kept it, there would be great growth especially in the last ten years. But individual dot com stock would have been except in a few cases a financial disaster. Yet the Dow is still less than 14,000 and there is no need to mention 5,000 for NASDAQ.

   Stock advisors are now bragging how well they and the markets have done in the last ten years. Well, go back just eleven years and everything changes.

   Getting a reverse mortgage will not cure a bad portfolio. If it is bad, living off a reverse mortgage will only keep the portfolio bad. Bad is just, well, bad. Reverse mortgages by themselves cure nothing. But that does not mean they should not be used even as suggested as long as the portfolio is sound and the owner understands the risks and is capable of correcting their positions rapidly. It just means like all loans, reverse mortgages should be used prudently and judiciously.

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2. 

   adminModerator

   May 2, 2011 at 11:13 am

   So true my friend. Thank you! I’ll post a note under the video.

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3. 

   James E. Veale, CPA, MBT

   May 4, 2011 at 11:13 am

   When it comes to the HUD report, it must be read with a grain of salt. Mr. Michael McCully and I had a running conversation in the thread of comments on the Reverse Mortgage Daily April 25th article titled “$3.3 Billion of FHA Reverse Mortgages Underwater” about a New View Advisors Commentary on the HUD report.

   The HECM program is not in jeopardy but it is not in the financial shape it would be if home values were on the upswing. The report is based on the very, very unrealistic assumption that all outstanding HECMs terminated on a specific date in the very, very recent past. Then values are estimated using broad market data. Current balances due are estimated using inaccurate but conservative principles. The flaws in this approach are immense but the report serves the purpose of demonstrating what the results would have been if all of the outstanding mortgages terminated on the same (recent) date and the factors related to losses were as bad as indicated.

   What is important to remember is that most of the losses come from the HECMs endorsed in the last decade, generally between 2006 and 2008. Using the conservative assumptions about the balances due on those HECMs leads to the conclusion that the total gross loss is overestimated; however, New View is right to adjust the loss for selling and foreclosure costs which would make the HUD estimated losses worse. The trouble is the imprecision is far too great to believe the numbers are reliable.

   Further one needs to understand that using historic standards not more than half of the HECMs endorsed in 2006 will terminate before 2013 with the remainder terminating over the following three decades or so. The losses and MIP revenues related to HECMs endorsed before October 1, 2008 will be reflected in what HUD and Congress define as the General Insurance (“GI”) Fund. The financial results for all HECMs endorsed after September 30, 2008 are reflected in the Mutual Mortgage Insurance (“MMI”) Fund. When it comes to defending the HECM program in Congress, the fund which absorbs losses is crucial and right now the most important fund to be concerned with is the MMI Fund. While still important the GI fund reflects endorsements made before HUD changed the principal limit factors and took other historic measures to countermand the effects of the current housing market.

   HUD took extraordinary measures to protect the HECM MMI Fund from the financial ravages of the expected losses from the HECMs endorsed during the fiscal year ended September 30, 2009 by relocating limited amounts of fund balances from other MMI programs to the HECM portion of the fund. By the time HERA became law, the budget for the fiscal year ended September 30, 2009 had already been introduced into Congress and the HECM program was still tied to the GI Fund at the time that the budget was introduced; HUD did what it could to protect the HECM program by its action. Of course this kind of reallocation flies in the face of the conspiracy theorists in our industry who have accused HUD of reallocating “the profits” in the HECM fund to other funds. This projection shows how wrong and reckless those accusation really were. It is good that most of those ridiculous and damaging accusations have subsided; they need to be stomped out once and for all.

   Is it reasonable to believe that the gross losses will exceed the current MIP revenues received to date? That is a matter of speculation but there seems to be sufficient data to indicate that could be the case. But remember by the time those losses are realized, there will be more MIP revenues on the HECMs currently outstanding and it is expected that home values will start turning around over the next eighteen months or so. But no one really knows what the outcome will be and until the vast majority of the outstanding HECMs terminate no one can say with any degree of certainty what the size of the gross losses or gross MIP revenues will be.

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