HECM Fixes, Outlook & Risk Management

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Industry leaders weigh in on proposed fixes, program outlook, and risk management

simple-fixThere has been much discussion recently on how to fix the Home Equity Conversion Mortgage or the federally-insured reverse mortgage program. Varying solutions include resurrecting another version of the HECM Saver, finding ‘solid’ low-risk seniors, and fixes to the back-end of FHA’s system which manages property dispositions, loan assignments, and processing defaulted properties.

“In our ongoing conversations with HUD and the Hill, we continue to emphasize the need to improve property disposition efficiencies, post-assignment. One change that we believe would be within the agency’s power to make fairly quickly would be to extend the cash for keys program to the entire book of HECM loans, as opposed to only loans closed after the new HECM rule went into effect,” said National Reverse Mortgage Lenders Association vice-president Steve Irwin in his  comments to Reverse Mortgage Daily.

Jack Guttentag, better known as the Mortgage Professor, suggests that FHA examine existing HECM loans that have incurred losses and group them by the payment or draw option chosen to see if there is a direct connection to insurance losses. However, Guttentag wrote “HECMs that are part of a well-designed retirement plan should carry little risk to HUD because borrowers will not face impoverishment that leads to neglect of the home. HUD might be justified in imposing lower insurance premiums on such HECMs.”

Others, including myself, have suggested that the underlying assumption of an annual 4% home appreciation rate should be reexamined and instead principal limit factors

Download the video transcript here



The Positive Realist August 4, 2018 at 9:45 pm

Last year Marty Bell wrote the following in his oped in the July/August 2017 issue of the NRMLA Reverse Mortgage magazine: “Tolerance of staying stuck in a cocoon has expired. Complacency is unacceptable.” To be fair NRMLA told us that they never knew about Mortgagee Letter 2017-12 until it was posted in late August 2017, about 60 days or so after Marty wrote those lines.

2018 is, however, yet another year of tolerance and complacency as to the continued pattern of secular stagnation. Demand is still dropping and there is no new sources of demand yet in sight.

Oh, yeah, some have cried out that there are signs of recovery, for the second time in less than 2 months. But where is the proof? For the second month in a row, the endorsement count is 15% lower than the month that was first identified as the low point for endorsements, April 2018. Is this what is meant by tolerance being expired and complacency being unacceptable? Yet I hardly think those who are making this noise are doing so this without some push from the powers that be. What has been chosen as intolerable and the subject of action that is being adopted are those who do not tow the line.

Most of the suggestions recently being bandied around about lowering the losses in the MMIF are great ideas about reducing actual losses in the future but should do little to change the near-term positions of the actuaries or those in HUD reporting on the HECM losses in the MMIF.

The only way to substantially change the losses on new HECM endorsement production in the MMIF in the near term is through a restructuring of the PLFs as Shannon proposes in his geocentric PLF structure or through an across the board significant reduction in the PLFs.

For example, while keys for cash has worked in a very significant way to reduce foreclosure losses in the forward mortgage industry, will it work nearly as effectively in our own, especially, where so many out-of-town heirs are handling the foreclosure of the property on the owners’ side? The keys for cash concept as currently practiced requires that the home be approved as meeting minimum standards before payment is made. The sooner the approval is made, the higher the amount generally received by those who have been foreclosed upon. If the home can only be surrendered in poor condition, the current cash for keys structure provides little compensation for those meager efforts to the homeowner. Again with out-of-town and out-of-state heirs as the new owners of the property, will this program be as effective as it is with forward mortgages? With cash flow discounting and a less accepted program, it would seem actuaries would not give much weight to this structure without several years of proof indicating its value.

Peter Bell wrote at the end of his current oped for the Reverse Mortgage magazine on Page 32, the following: “Are there product modifications or variations that can help assure the program’s long-term financial viability? This is what NRMLA has concentrated on over the past year. We have made several recommendations to HUD’s leadership….” So IF this does not help the losses in the MMIF, it is doubtful if NRMLA can match this effort of finding cures again for several years or longer.

John A. Smaldone August 6, 2018 at 9:56 am


You brought up some good points, one was on not using a 4% arbitrary appreciation rate nationwide. You suggested adjusting the the PLF,s or lowering them in some areas based on geographical areas where the 4% appreciation rate shows to be lower.

My question to that is how is HUD going to administer and keep tract of those statistics in a way that all will agree upon?

I liked Tory Larson’s quotes as well as Mike Kent’s but as you said Shannon, not an easy fix to a complex situation!

One thing we know for sure, we need more origination, which will lead to more endorsements, that will help the fund at least somewhat!

John A. Smaldone

James E. Veale, CPA, MBT August 6, 2018 at 2:40 pm


What the HUD annual report clearly shows is the greater the number of endorsements, generally the greater the loss.

Melinda Hipp August 6, 2018 at 12:54 pm

John, the way that HUD administers the various areas would be no different from the way they set loan limits of forward mortgages each year county by county. The concept would just apply to PLF’s instead of the Max Claim.

James E. Veale, CPA, MBT August 6, 2018 at 2:54 pm

Ms. Hipp,

That is correct. We propose that one of the providers of market value be tapped for historical market values to make in the determination of appreciation rates over a five year period. That determination would be quarterly or biannually. PLFs would be stratified by appreciation rates.

There would be about 8 categories of PLFs correlated to the average appreciation rates for the five year period. There could even be an additional category for homes with values exceeding $1 million that are located in an area where the average appreciation rate exceeds say 5.5%.

Right now these are just ideas that are in discussion so things could change. Shannon and I have been kicking this back and forth for months now.

Of course, some areas in the country will hate it while others like it. Again this is an idea in its formative stages.


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