2 comments

The_Critic April 24, 2011 at 2:53 pm

As to the proposed Texas legislation, a fifteen year repayment period does not conform to HECM requirements. HUD has no right to endorse any loan that does not conform to federal statutory requirements.

The real concern for lenders is not the 15 year repayment itself. It is the fact that no investor wants to acquire a product which could have problems with repayments and is not insured by FHA. Remember the heirs are not qualified for repayment purposes. Imagine the possible trouble this possible refinance could produce for the secondary market. There is no information about required down payment, etc.

It seems the only way the product being proposed could be originated is if the lender will carry the paper. Unless the federal law is changed, there appears to be no way it can be endorsed by FHA. So imagine the interest rates and principal limit factors.

Texas is independent. But this is not the way to take care of seniors or their heirs. HECMs is not a program designed for heirs. While there appears to be a valid anti-displacement rule for non-borrowing spouses, there is none for heirs who are not borrowers.

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James E. Veale, CPA, MBT April 24, 2011 at 3:16 pm

What positive cash flow? The cash flow being touted is nonexistent; it is a projection. First, there is no information on how many Standards or Savers will ultimately be endorsed during this fiscal year. We still have over five months before this fiscal year closes.

On top of that, the $304 million is not produced in this fiscal year. If history is any indicator, it will be spread out over at least two decades. In fact it will be much different than the $304 million indicated. $304 million is the present value of the alleged net cash inflow to be received.

While many went over the top protesting over the positive credit subsidies of the prior two fiscal year HECM budget projections, it is strange to see the overwhelming acceptance of the negative credit subsidy projected for this fiscal year. In fact, the cash flow from HECM activities for this fiscal year could easily be negative. With little upfront insurance coming from Savers and low endorsement numbers projected for this fiscal year, over all cash inflows could be less than cash outflows in this fiscal year.

The $304 million is the present value of what the HECMs endorsed in this fiscal year will produce over their lifetime. Whether the cash flow from this year will be positive or negative is a function of total insurance proceeds received on all outstanding HECMs less losses insured and expenses incurred including inter-Department interest.

While budget numbers are useful in addressing Congressional budgetary concerns, they are next to worthless in determining where the program actually is as of today.

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