Examining the HECM’s Viablity

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Truth be told, the HECM is not the only loan that is dependent on the government

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The United States is in the mortgage business and in a big way. I have had to repeatedly remind myself that Uncle Sam’s reach in mortgage lending goes far beyond Home Equity Conversion Mortgages. At times many reverse mortgage professionals may lament our industry’s near total dependence on the federal government when in reality the majority of the housing market is regulated and ultimately backed by the taxpayer. The HECM is no exception.

This point should not be overlooked when considering the recent news that President Trump issued a memoranda instructing the Department of Housing and Urban Development to report back on the financial viability of the HECM program. A proposition that has caused considerable concern. It’s not a shocking development being mindful the program has generated significant claims since being moved to FHA’s Mutual Mortgage Insurance fund in 2009. Subsequently, FHA officials have wrestled with just how to stop the continuous stream of…

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The Positive Realist April 8, 2019 at 1:11 am

Not long ago we had an experienced and well established group of people at HUD focused on the HECM program. Today that experience other than that seated in the FHA Commissioner has been at least significantly reduced. NRMLA on the other hand is living in a world of imagined opportunity being fulfilled in the remainder of fiscal 2019. So what is being said and what are the facts?

Last month just before the Western Regional Conference one of the executive staff at NRMLA was quoted as saying that NRMLA was looking forward to the remainder of fiscal 2019. Almost the exact same sentiment was expressed by Dr. Joshua Miller who Peter Bell all but stated was the replacement for “Karin Hill, whose duties in the Office of Single Family Housing saw her spend a significant portion of her time on the HECM program before her retirement in 2017.” In his session at the Western Regional Conference, Dr. Miller shared: “… case number assignments and endorsement figures for the year-to-date in 2019 versus 2018 numbers, indicating case number assignments are trending up slightly, while endorsements are down slightly.”

Yet just looking at the FHA HECM Summary Endorsement Reports for March 2019 and March 2018, endorsements were just 15,618 through the first six months of fiscal 2019 but 29,832 for the first six months of fiscal 2018. That is a 47.6% drop in fiscal 2019. How is that drop SLIGHT? Dr. Miller was happy to tell the audience that the February 2019 case number assignment count is almost 5,000. Yet using 1) the four month lag rule for the average HECM to go from case number assignment to endorsement and 2) a conversion rate of 66%, the total endorsements projected for the third quarter of fiscal 2019 will be about 8,000 endorsements.

Based on the projected endorsements for the third quarter of fiscal 2019, the first nine months of fiscal 2019 are expected to produce about 23,600 endorsements versus 39,374 endorsements produced in the first nine months of fiscal 2018. Without the case number assignment counts for March, April, and May 2019, the basis of predicting endorsement counts in the last three months of fiscal 2019 (ending September 30, 2019) becomes unreliable. Still it is unlikely that in the last quarter of fiscal 2019 there will be anything close to the 25,759 endorsements estimated as needed to make the number of HECMs endorsed in fiscal 2019 equal to the 48,359 HECMs endorsed in fiscal 2018.

Based on reasonable and realistic estimates, it is very likely that not only will fiscal 2019 be among the three worst percentage losses for endorsements when compared to the total endorsements for the prior fiscal year but it is also likely that the endorsement total for fiscal 2019 will produce the highest percentage loss for any fiscal year before it. It is also highly likely that the combined percentage loss for fiscal 2018 and 2019 will be the highest (or second highest) for any two consecutive year period in the history of the industry.

Endorsements slightly down in fiscal 2019 when compared to fiscal 2018? Hardly. Worse this shows inexperience at HUD at the time, EXPERIENCE is most needed.

As to the remainder of 2019 being something to look forward to, well, that is the problem with ultra optimism.

My personal confidence that the current fiscal year will result in a 0.8% positive cash flow is not high. The question that remains unaddressed is if HUD has the experience, capacity, willingness, and unbiased character to provide the President an unbiased assessment he is requesting.

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