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