HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
First, there is a 2 percent upfront mortgage insurance premium. Instead of being charged against the loan amount it is instead based on the property’s maximum claim amount (MCA). The MCA is the lesser of the property’s appraised value or the FHA lending limit. As an example, if a borrower with a $300,000 property obtains a fixed-rate HECM for $150,000, the upfront MIP will be $6,000 — 2 percent of the home’s value but 4 percent of the amount actually borrowed in this example. Second, HUD also charges an annual mortgage insurance premium equal to 0.5 percent of the outstanding loan balance for reverse mortgages. While the forward MIP fees produce robust reserves, that has not been the case with the HECM program. To understand why we need to look at how HECMs evolved. In The Beginning The HECM program as we know it today got its start through the
Housing & Community Development Act of 1987, legislation sponsored by Sen. William Proxmire, D-Wisconsin, creator of the famed Golden Fleece Awards. HECMs began as a small demonstration project to test the concept and then evolved into a full- blown FHA program. “Since the inception of the program, said HUD in its 2018 Annual Management Report, “FHA has insured 1,100,659 HECM loans with a maximum claim amount of $269 billion. Of these 1,100,659 HECM loans insured by FHA, 547,779 loans with a maximum claim amount of $144 billion are still active. As of September 30, 2018, the insurance-in-force (the outstanding balance of active loans) was $100 billion.” The most interesting time in HECM history was no doubt FY 2009. During that period 114,692 HECMs were originated, the record.
reserves within the Mutual Mortgage Insurance Fund (MMIF). An actuarial analysis prepared for HUD at that time estimated that “the economic value of the HECM portfolio will continue to increase over time with the addition of new books-of-business and improvements in forecasted economic conditions. The estimated economic value at the end of FY 2016 is $19.8 billion.” Indeed, by FY 2016 the program was supposed to throw off income worth $490 million. What Went Wrong The central presumption of the HECM program was that big MIP collections, rising home values, and stingy Principal Limit Factor percentages would prevent losses. Indeed the program was expected to ultimately generate massive profits. Why these projections did not come true — and why the HECM program is in so much trouble today — is the
Also in FY 2009, HECM reserves were combined with forward FHA mortgage
U.S. MEDIAN HOME PRICES & APPRECIATION
ANNUAL HOME PRICE APPRECIATION
U.S. SINGLE FAMILY & CONDO MEDIAN SALES PRICE
$300,000
20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0%
$250,000
$200,000
$150,000
$100,000
$50,000
$0
5
DEC 2018 | ATTOM DATA SOLUTIONS
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