A year to give thanks for?
Thanksgiving is the season to reflect upon the blessings bestowed upon us. In recent years continuing that tradition has been a challenge for reverse mortgage originators and lenders alike as we faced numerous policy changes that significantly reduced originations, marketing budgets, and ultimately the number of Home Equity Conversion Mortgages endorsed. However, this year we may have reason to celebrate.
As claims from federally-insured reverse mortgages surged the common response from HUD was to (1) reduce principal limit factors, or (2) adjust FHA insurance premiums. Often these were referred to as the ‘levers’ the agency pulled to reduce the risk of future insurance claims. Last September we saw a significant departure from this historical response with HUD choosing to forgo PLF reductions in favor of the Collateral Risk Assessment which requires a second appraisal when FHA’s automated valuation model reflects an inflated value. While not embraced by most industry participants it was less severe than the alternatives.
Now we anxiously await the actuarial report on the Federal Housing Administration’s Mutual Mortgage Insurance Fund- more specifically the HECM claims paid last year and the projected economic value of the program.
There are two reasons one could be cautiously optimistic.
First, the HECM’s economic performance is especially sensitive to present and projected interest rates. The Federal Reserve’s announcement of planned rate cuts could significantly improve the economic valuation and outlook for the HECM.
Second, the most exacting reforms recommended by HUD Secretary Ben Carson require Congressional approval. Those include the removal of the HECM from FHA’s insurance fund and the elimination of a national lending limit. With the House of Representatives being fully engrossed in the ongoing impeachment investigation and the meager 8 days the lower house is scheduled to work in November, legislative changes are unlikely in the near future.
All which leaves us with potential administrative changes, one in particular that Secretary Carson has touted repeatedly- the elimination of HECM-to-HECM refinances. To date, no mortgagee letter has been announced to effect such a change. However, should the pending actuarial report reveal a worsening economic forecast HUD could offer the refinance moratorium as proof of their earnestness in addressing financial risks. Until then many are anxious to see previously-announced improvements in how HUD’s contracted servicers dispose of HECM properties that are no longer occupied by a borrower due to death or relocation, and the verification that an eligible borrower or spouse remain in the property.
All things considered, we have much to be grateful for.