New Report Separates & Exposes HECM Liabilities
HUD’s most recent actuarial review and net value of the Home Equity Conversion Mortgage sent shockwaves through the reverse mortgage industry last week.
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The 2017 Fiscal Year actuarial review of the HECM portion of FHA’s MMI fund showed a present negative net worth of $14.2 billion and a standalone negative net worth of $14.5 billion. With the traditional or forward mortgage book of business generating a positive cash flow value of $1.89 billion, the rationale behind repeated calls by both lawmakers and even the support of HUD Secretary Ben Carson to remove the HECM from the MMI fund become increasingly clear.
One could safely assume that HUD was aware of these developments when it chose to enact further cutbacks to the HECM by decreasing lending ratios in the effort to prevent future losses. Referencing October 2nd changes HUD senior advisor Adolfo Marzol said, “The HECM program has been a substantial net economic drain on…
2 Comments
Shannon,
You covered the latest change very well in the 7 minutes you have had. No doubt this latest move has sent shock waves throughout.
However, the problem that exists is upon us, nothing we can do other than change our strategy.
This problem did not just pop up overnight, it has been brewing for many years now. Mostly because of poor management of the fund and moving funds from one place to another.
Separating the HECM from the forward loan arena is a must, at least for the present time. We need to take responsibility of the HECM and its MIP costs and controls. This is the only way we can measure what needs to be done in the future, if anything?
For now, the industry as a whole has no choice other than to accept what is and go on with business as normal, those who can’t, will not survive the trend. We need to go after new markets, seek out those homes with lower loan to value ratios, start working with the fiduciary industry and be positive. What choice do we have if we want to stay in the reverse mortgage world and make a good living at it?
John A. Smaldone
http://www.hanover-financial.com
John,
NRMLA CEO and President Peter Bell does not agree. Neither does Representative Heck (D-WA). It is primarily MBA President David H. Stevens that has been pleading for the switch to another fund. Former FHA Commission has also opined his preference for a move back to the GSRI Fund.
As explained by others, if we were to move back to the GSRI Fund, the only years that we could originate in are those in which we had a negative credit subsidy and if we could only to the extent the production would still result in a negative credit subsidy. This is NOT how the HECM was originally created. It was created with the view that any losses would be made up with gains in subsequent years.
Mr. Bell and Representative Heck are recommending that the actuarial review be adjusted to depict the outcome of cohorts of endorsements by fiscal year but without the volatility. Neither have provided details on what needs to be changed.
Mr. Bell stated that the changes had been a priority of NRMLA this year and that NRMLA was gearing up to lobby for the changes. It seems NRMLA wants our support without providing any information on the changes it is proposing. Is the reason that Mr. Bell has not released his ideas because the changes are overly biased for the program and he fears others raining on the NRMLA parade? This would not be the first time.