Housing-News-Report-December-2018

HOUSINGNEWS REPORT

REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?

REVERSE MORTGAGE ORIGINATIONS

The looming question is whether HUD can continue to insure FHA- backed reverse mortgages. No insurance company would maintain a program that produced more than $13.5 billion in net worth reductions, but HUD is not a business, it’s part of the government. Rather than killing off the reverse program, the alternative has been to tighten HECM standards to the point where fewer and fewer borrowers want them. In 2014 HUD limited the cash borrowers could initially take from an HECM to 60 percent of the loan amount. In 2015 lenders were required to perform “financial assessments” to assure that borrowers could pay property taxes, insurance, and HOA fees. In 2017 the principal limit factors were changed to reduce loan sizes while in October 2018 HUD began requiring two appraisals for at least some reverse mortgage applications. “Fewer potential borrowers are eligible due to Financial Assessment and reduced principal limit factors,” said John L. Lunde, president of Reverse Mortgage Insight. “Borrowers on 2017 loans pay more mortgage insurance premium upfront but a lower annual rate over time, tilting the potential cost reduction toward those who borrow the most for the longest period.” A Turnaround “I can tell you,” said FHA Commissioner Brian Montgomery, according to Housingwire, “that the changes FHA made to the principal limit factors and the adjustments to the HECM

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

FISCAL YEAR

SOURCE: NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION

rates and rising home values. The next few years won’t be so easy. Lenders and originators are going to have to work a lot harder to achieve their sales goals.” Insurance Reserves The FHA program was established in 1934 and in fiscal year 2018 it insured 1,014,609 single-family forward mortgages as well as 48,327 HECMs. Ellie Mae says that FHA-backed mortgages represented 20 percent of the residential market in September. With an FHA-insured mortgage, a buyer can purchase a home with 30-year financing, 3.5 percent down, market-rate interest and no prepayment penalties. If something goes wrong, lenders can file claims against HUD’s Mutual Mortgage Insurance Fund (MMIF). Many on Capitol Hill worry that the MMIF will be insufficient to pay all claims in the event of a downturn. Congress requires HUD to maintain

a 2 percent capital ratio, meaning that the reserve must be equal to 2 percent of the FHA loans outstanding. In FY 2013 the MMI Fund capital ratio stood at -0.12 percent. With changes to the FHA program, HUD has substantially boosted reserves to the point where they now stand at 2.76 percent for the entire fund, an increase of $36.19 billion in just a few years. This, by any standard, is a substantial success. “The fiscal condition of FHA’s forward mortgage portfolio is materially better than the HECM portfolio,” HUD explained. “Excluding HECMs, FHA’s FY 2018 forward mortgages have a capital ratio of 3.93 percent and a positive Economic Net Worth of $46.8 billion. By contrast, the 2018 HECM portfolio has a negative capital ratio of 18.83 percent and a negative economic net worth of $13.63 billion. The problem is that within the reserve fund growth has been uneven.

7

DEC 2018 | ATTOM DATA SOLUTIONS

Made with FlippingBook Online newsletter