What Have We Learned from 2013?

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What Lessons Can Our Industry Take Away From 2013?

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I don’t completely agree with the adage “Hinsight is always 20/20”. Why? Because if we don’t take away the teachable moment from our experiences we lose the opportunity for perspective and growth. Beyond the top reverse mortgage stories for this year there are some greater lessons to be gleaned from what is sure to be noted as a watershed year for the Home Equity Conversion Mortgage program. Here are a few take aways for us to consider. #1- If it sounds to good to be true it probably is. Economically we can point to artificially low interest rates and government economic stimulus as short lived events. While the Federal Reserve has done what it deems necessary to prop up a faltering economy it is unlikely they will fully cease measures to inject more liquidity into the market as the American consumer has become hooked on the sweet sugar of cheap money. As an industry we can point to the extinct Standard Fixed rate loan. If anyone looked at the amortization with a full lump sum withdrawal one could easily see the increased risk of FHA paying an insurance claim when the loan terminated. HUD’s actuarilal review of the mutual mortage insurance fund snapped us back into reality #2. It’s Perception not Product. While reductions in the principal limit, higher FHA insurance premiums and new underwriting standards limit the HECM loan’s adoption, our biggest hurdle is…

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5 comments

Gary Guarino December 20, 2013 at 9:13 am

What the industry needs more than anything is an overhaul of PERCEPTION!. What does any large corporation do if they have negative public perception or a catastrophic event happens that changes their public opinion?? They immediately hire a public relations firm to OFFSET negative public perception with a POSITIVE advertising campaign. YES, if HUD would launch this campaign and MAINSTREAM media gets on board with the FACTS of our program then we can finally get out from under this black cloud of the “old” reverse mortgage misconceptions!
I could list a host of corporations that have done this but you get the point…..it’s that simple HUD!

Reply
The_Cynic December 20, 2013 at 11:21 am

Gary,

Why should HUD incur a single dollar in costs for such a campaign? HUD does not need more HECMs; the reverse mortgage lenders do.

The operating and administrative costs for HECMs come out of the annual budget for HUD. Do you really think Congress would approve a huge marketing cost which benefits lenders?

Second, all MIP is dedicated to loss reimbursement and assignment costs with the ability to pay a portion (if not all) counseling costs when the net position of the HECM portion of the MMI Fund exceeds its portion of capital reserve requirements. Things are so bad with the HECM portion of the MMI that HUD placed all of the funds transferred out of Treasury (about $1.7 billion) into the HECM portion of the MMI Fund. Then it also transferred another almost $4.3 billion out of other MMI Fund programs (forward mortgages) into the HECM portion of the MMI Fund. Adding in all funds transferred into the HECM portion of the MMI Fund since fiscal 2010, $8.2 have been transferred.

So with the problems in the MMI Fund and the annual budget problems in the HUD annual budget, how are you proposing that this campaign be paid for? Since new originations help lenders and not HUD, why should HUD pay for any of it?

Reply
James E. Veale, CPA, MBT December 20, 2013 at 12:55 pm

A very big lesson I learned this year is about HUD. Although few in the industry embraced the changes HUD made to the program, HUD’s main driving principle was to make the program sound for both now and in the future. HUD is also concerned about its reputation risk in light of endorsing HECMs which were known to have a huge risk of property charge payment defaults within months or even years following funding.

Most of us did not appreciate the loss of the fixed rate Standard after 3/31/2013 or all Standards after 9/30/2013. Quickly financial assessment will be upon us and the cries of fowl play against the most needy prospects will be heard once again.

BUT we need what HUD did in these changes and even more in what they did to enhance the value of the HECM program with the MMI Fund.

Here is what I learned. I loved the idea that HUD had never raided another program or taken any taxpayer dollars to run the HECM program. Until fiscal 2010, HUD had never raided any other program to bolster the financial position of the HECMs within the MMI Fund. But that means it took less than 2 years for the HECM program within the MMI Fund to need that kind of assistance. It was not until I had been in the industry for about 30 months that it dawned on me that the HECM program has always (yes, always) been subsidized by US taxpayers through the HUD budget process in that all HECM ordinary operating and administrative costs are paid for out of the annual HUD budget; neither MIP nor the intragovernment earnings on the MIP cash held at Treasury are ever used to pay for operations or administration.

But now I see how necessary and beneficial the transfers of funds from other MMI Fund programs into the HECM portion of that fund are. Without those specific HUD actions totaling $6.5 billion transfers over the last four fiscal years plus the US Treasury transfer of $1.7, not only would the HECM portion of that fund be $1.7 billion negative but it would be short of reaching its share of the MMI Fund capital reserve requirement.

So even though I do not like the idea of the transfers, those specific transfers have temporarily saved the program and made it viably strong near term. Sometimes there is no way to stand on mere principle if as they say in medicine, the patient (the ongoing HECM program) will be lost.

(The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

Reply
Bill Danner December 23, 2013 at 3:05 pm

Whether Mr. Veale’s use of the word “fowl” vs the correct”foul” is his way of describing the Turkeys running the program, I find it quite appropriate. Quite well done old Bean. Have a Merry Christmas.

Reply
James E. Veale, CPA, MBT December 23, 2013 at 11:35 pm

Mr. Danner,

Sometimes my word processor anticipates a typo which is no typo at all. It seems it believes that fowl is more common than foul.

It is my fault for not catching the error.

Thank you and enjoy the holidays.

Reply

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