2 Comments

1. 

   Glenn Main

   December 24, 2018 at 7:00 am

   What protection can Hud do for the borrowers. So much focus is on the industry but very little is on the borrowers protection.

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     The_Cynic

     December 24, 2018 at 12:22 pm

     Glenn,

     HECMs are already nonrecourse. Second, the Mortgage Insurance Premiums allow HUD to offer insurance to lenders so that they are reasonably protected so that they can offer a high risk nonrecourse mortgage with no payments required from the borrower until loan termination at a competitive interest rate. Normally when risk is high for a mortgage, the interest rate on it will also be high.

     Then there is Financial Assessment as mandated in Mortgagee Letters 2014-22, 2015-06, and 2015-09. The purpose of Financial Assessment is to minimize defaults on the payment of property charges in the years immediately following loan closing. Not only have endorsements and their related case number assignments seen substantial drops since the addition of this consumer protection but it has also caused the average actuarially determined loss on HECM endorsed each fiscal year to rise each fiscal year since fiscal 2015. With a decrease in Principal Limit Factors on 10/2/2017, it seems the average actuarially determined loss per HECM endorsed, the continued rise in the average actuarially determined loss per HECM endorsed in a fiscal year caused by Financial Assessment has seemed to have peaked during fiscal 2017.

     BUT seeing a loss of about 25% in demand is a high, high cost to provide a consumer protection. Further it is exposing the program to such loss that there are very sincere concerns that the government may limit the number of new HECMs can endorse each fiscal year, further decreasing actual loan closing each fiscal year.

     Let us not forget the protections offered to non-borrowing spouses since 8/4/2014.

     Then there is the guarantee that not only is the line of credit cannot be frozen, reduced, or taken away. Not only that the growth of the line in credit is also guaranteed.

     I personally know of NO mortgage available to the general public with so many borrower protections. If you do, please let us know.

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