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HECM Fund’s Economic Outlook Improves Despite Challenges
If you’ve lost any sleep in the last year wondering if the Home Equity Conversion Mortgage program will be further restricted you may be able to put that worry to rest in the coming year.
The long-awaited FHA Annual Actuarial Report was released coincidently on the same day that National Reverse Mortgage Lenders Association’s annual meeting began in San Francisco, November 16th. The HECM’s report begins with these encouraging words in the letter to the Deputy Assistant Secretary of Housing Edward Golding, “We estimate that the HECM Fund’s economic value as of the end of fiscal year 2015 was positive $6,778 million ($6.7 Billion) and the insurance in force was $106.23 billion ($10.6 Billion). We project that at the end of fiscal year 2022 the HECM Fund’s economic value will be $13,665 million ($13.6 Billion) and the insurance in force will be $184.49 billion.”
It appears that after several principal limit factor reductions, the enactment of first year distribution restrictions and the new financial…
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3 Comments
Shannon,
Sorry I missed seeing you. I did not make it this year.
Your comments were right on target. I feel we all have a lot to look forward to. I realize some are still having problems embracing the FA ruling in a positive way.
Those that are still having problems need to examine their options. I the FA ruling can’t be accepted positively by some, maybe they will have look at other career options, FA is here to stay.
The opportunities are endless, we now have a product that will do what it should have in the beginning for our seniors. First off, the RM will still give a better quality of life for our seniors during their retirement years, maybe even a better quality of life with more of a peace of mind, due to the FA ruling!
Think of all the foreclosures over the years because of failure to pay their taxes, insurance and any other property charges.
Our seniors were not qualified or help protect them from foreclosure in a way the FA ruling does now.
Another major point to recognize is that the HECM of today is more of a financial and retirement planning tool than ever before.
Last but not least, we have over 8,000 seniors dialing turning 62, along with that, seniors have more equity in their homes, aggregately, than ever before!
John A. Smaldone
This is the expressed opinion of John A. Smaldone only and does not represent an opinion of Willow Bend Mortgage or their affiliates!
It is important to realize that the $6.778 billion is all window dressing while actual HECM activity in the MMI Fund has resulted in an aggregated net loss of $684 million. So what is meant by window dressing?
There are three components to the balance of the HECM portion in the MMI Fund. The first is the amount taken from the US Treasury of $1.686 billion at the end of fiscal 2013 and has not been repaid nor has it been treated as a liability of the HECM portion of the MMI Fund. This means that of the $6.778 billion ending balance in the MMI Fund, $1.686 billion came from a direct transfer of US taxpayer receipts into the HECM portion of the MMI Fund.
The second component is the net funds transferred into the HECM portion of the MMI Fund from other MMI Fund programs (forward mortgages) and not classified as debt to those programs netting a positive $5.776 billion. For example, in fiscal years 2010 and 2011, $1.748 billion and $0.535 billion respectively were transferred from other MMI Fund programs into the HECM portion of the MMI Fund. During fiscal 2013, the transferred amounts from those same programs totaled $4.263 billion. Then in fiscal 2014, HUD took $0.770 billion out of the HECM program placing into another HUD program. So before considering intrafund earnings, the net amounts transferred out of other HUD programs into the MMI Fund and not classified as liabilities now stands at $5.776 billion. So far of the $6.778 billion balance in the HECM portion of the MMI Fund as of 9/30/2015, $7.462 billion came from transfers of funds from sources having nothing to do with the HECM program. These outside funds are camouflaging what the results from seven years of HECM activity actually are. We will see that in the third component.
The third component reflects the income, gains, expenses and losses related to HECM insurance activities. That now stands at a negative $0.684 billion which shows that as of yet, not even the HECM loss reimbursement portion of the HECM program accounted for in the MMI Fund (that is HECMs endorsed after September 30, 2008) is self sufficient.
What we need to understand is that by taking funds from the US Treasury and other MMI Fund programs, we have not JUST heard oral support from HUD executive management but they have done their best to bolster the financial position of the HECM program so that it is far less likely to be on the chopping block any time soon; however, there is a limitation on what HUD can and cannot do.
So now it is time to place the dressing back on the window and thank the present and past executive management at HUD for all of its efforts on behalf of the program.
To reach the predicted amount of HECM insurance in force by 2022, the actuaries are estimating about 463,000 new endorsements in the next 7 year period. During fiscal year 2022 the estimate is 74,336 which is the highest estimate during the seven period then ended.
Yet the endorsement numbers seem too optimistic based on an estimate of 55,000 new endorsements for this fiscal year. Case number assignments through current data released by HUD does not support even that kind of optimism. The industry is not dying but demand has certainly shrunk. Perhaps case number assignments during October and November will justify the actuarial estimates but for now, we need far more originations to achieve the endorsement outlook estimated by the acturaries.