Boy, if ever the RM industry had a cause to fight for this is it. You have the Zickefoose case, and others, I think you could document to show how raising "premiums" would really screw seniors even more and cause an even higher foreclosure
rate, the very thing the government says they want to stop. Every congressperson should be made aware of the facts to nip this dagger in the bud before it goes any further.
Sorry, for all my lecturing, but I've seen how the insurance industry waged, and won, by using mail campaigns to stop certain new law proposals.

This an appeal to Mr. Peter Bell.

Mr. Bell,

You did a very nice job of explaining the budgetary process to us.

Why would the head of HUD say he was open to increasing MIP if the $798 million budget request was simply an annual funding matter, i.e., positive and negative contributions to the Treasury? It seems not only has Mr. Dugan done the industry no favors but now it appears our chief regulator is doing the same.

While I know Mr. Donovan is the new guy on the block, he is experienced in the housing industry and should know better than giving off the cuff remarks like this. Or was it off the cuff? Does Brian Montgomery, Meg Burns, or Jim Beaver share Mr. Donovan's view? Is the HECM program as presently structured in trouble?

If the mathematical model for the MIP structure is significantly flawed or "broken", then fees need to be raised but is it? The statement of Mr. Donovan makes all of the irrational concerns related to the budget request that were expressed on RMD (and that you so deftly answered) look utterly rational now.

Please give some perspective to Mr. Donovan's remarks.

There are quite a few industry professionals that believe that it is mathematically impossible for the HECM Fund to be short. Maybe it's time someone does the math? Does anyone think they could do a close workup of where we stand? I know it's asking a lot, and probably impossible for a public person to get ahold of enough sensitive info to get an accurate answer, but it should be possible to get really close.

Maybe the program is short now, but for over twenty years the program has been a positive program for HUD!

Less then ONE billion to help out the current landscape should be given, this is a government sponosered program.

But then again, screwing the american people is want this current congress leaders and president like to do.

I'm not a politician but all Donovan said was he was willing to discuss it after the hearing with the senator.

It seems like he is in favor of NOT increasing the premiums or lowering the LTVs, but it's his job to educate people on what alternatives are available.

Like I said, I'm not a politician, but I didn't read it as this was definitely going to happen.

Ray P,

As I understand the situation, this is just a partial return of funds that the HECM program sent to Treasury in prior fiscal years. So I would go beyond HUD, the program has been positive for Treasury, and the American people.

KidReverse,

There are three accountings, three sets of projections, financial statements, an actuarial study on projected HECM losses, and one set of comparisons I would love to see.

The first is an analysis of the HECM budget request. If I understand Mr. Peter Bell correctly, this should show the projected cash on hand as of the beginning of the fiscal and estimates of cash inflows and cash outflows by broad categories with related amounts. The net result should be the $798 million being requested. It is extremely doubtful if anything like contingent cash needs or “cushion” would be displayed but the other information would be very instructive and insightful.

The next is a detailed projection of the number of HECMs that are expected to terminate in the fiscal year with estimated losses broken down by the fiscal year they were endorsed. Related to this would be a historical accounting of terminations broken down by year of endorsement with related losses along with the total revenues that each of those years has generated since endorsement including upfront MIP which I would hope would be shown as a separate number.

It would also be good to see a history of the cash purchases of assigned HECMs and the cash generated from their terminations broken down year by year and also by year endorsed. Along with that it would be nice to see the projected purchases and terminations for the next fiscal year.

Of course, financial statements by fiscal year for the HECM program would be nice along with any notes and related audit reports. If amounts in those financial statements were based in part or whole on reports provided to HUD, it would be nice to see those as well.

The actuarial study would be an accountant’s delight. It would be projected as of September 30, 2008 or if possible, later. I would break down the losses by fiscal year endorsed and by fiscal year in which it would be expected to be paid. It would be completed by a competent, experienced, knowledgeable, and reputable actuarial or CPA firm with substantial experience in providing reasonably reliable studies.

Finally, it would be nice to see the projected HECM budgets compared to actual for each fiscal year.

But then “if wishes were horses, beggars would ride.”

Back to work....

admin,

It is very significant that Mr. Donovan made this response. It is all but an open admission that the HECM program may not only need a return of monies it had previously contributed to the Treasury but also need a new and permanent source of additional funds or a permanent reduction in risk.

For almost twenty years the program has been contributing cash to the Treasury. It is expected to run on an overall breakeven basis. Now it has had a year when the cash needed is greater than the cash expected to be received. That is a normal expectation.

HUD at the same time should have a turn around of using more cash than it receives not only because losses maybe large in several years and be caught up later but also HUD is required to purchase assigned loans. That will only grow in time and funds are needed to make larger and larger purchases almost all of which will be recovered when those loans terminate. So there should be expected periods of borrowing from the Treasury.

By making the statement he did, Mr. Donovan is implying that the MIP revenues may not be sufficient to cover losses. If these are prior losses, this would be a tremendous blow to the program and would mean future borrowers would be paying off legacy costs, would not be able to obtain the same ratio of proceeds as prior borrowers, or maybe both. This would be huge blow to the program.

Mr. Donovan cannot casually make remarks without significant reactions. What you are reading is just one.

James,

One area that I had not thought deeply about was the purchase and resale of the property between the assignment date and the rm's maturity. Perhaps this is being mishandled or overlooked as an asset? That would be a rather large oversight, but then again, it does happen.

The reason for the request for credit subsidy at this time is that if you take the projected book of business for FY 2010 (the year beginning Oct. 1, 2009 and ending September 30, 2010) and calculate the inflows from MIPs and collections from that book of business over its life, then subtract the payout for insurance claims, the cost projection shows as -$798 million.

The primary reason for this is that if you adjust the home price appreciation assumptions downward (to be negative) for the next year or so, then leave it flat for a few years after that, the program is projected to create that magnitude of loss on that book of business.

There are a few way to deal with this. HUD could seek "credit subsidy" to cover that loss, as they have proposed in the administration's initial budget proposal. Secretary Donovan has demonstrated an inclination to do just that -- seek additional subsidy to keep the program as useful for seniors as possible in this economic environment.

Alternatives are to raise the MIPs, so that more money comes in, eliminating the need for credit subsidy, or to reduce the principal limit factors, thus reducing FHA's exposure in a time of falling property values.

Fiscal conservatives, opponents of FHA, balanced budget advocates and others who believe the government should be less involved in the economy advocate eliminating federal loan guarantees to protect the government from shouldering such expenses. Or, at least rasing fees, like MIPs, so no subsidy is required.

Social progressives accept the fact that there are times and places in which the government should step in and subsidize some areas of commerce to keep economic activity rolling. This is one of those times where such action clearly is needed, in my way of thinking, to keep tools such as HECM functioning smoothly.

I applaud Secretary Donovan for trying to obtain the subsidy necessary to avoid lessening the value of HECMs to seniors. However, it is unclear if he will be able to maintain that stance throughout the Congressional budget process. There are some Congressional appropriators who are suggesting that HUD look at raising fees or reducing benefits, instead of seeking subsidy.

The subsidy request, by the way, is not emanating from any surprises in overall HECM program performance. It is merely the result of a downward adjustment in home price appreciation assumptions from levels that were set many years ago in a different economic environment.

The Office of Management & Budget, which is completely separate from HUD and part of the White House, determines home price appreciation assumptions which are then used government-wide for various programs, including HECM.

OMB does not publish its assumptions. To do so, they fear, would drive markets. For instance, if OMB said publicly that they think home prices will fall further, would anyone buy a house today? Probably not, putting things into a greater tailspin.

To put this into perspective, if a loan was made at the top of the market a few years ago and the principal limit was based upon the highest value back then and the lower interest rates of back then, but it now gets assigned to HUD or settled this year or next when values are seriously diminished, is it conceivable that FHA would take a hit? It most certainly is. It is that type of scenario that is driving this budget debate.

Finally, both OMB, whose function in this issue is generally described above, and Congressional Budget Office, which "scores" all programs for Congress, will have representatives speaking at next week's NRMLA policy conference. If you are concerned about this and want to truly understand the issue, so you can discuss it intelligently with your elected representatives, you should be there, too.

It seems like our government has invested a few dollars to fix the sub-prime mortgage mess, trying to sustain homeownership in general. Older retired homeowners are not eligible for the loan modification programs their tax dollars are supporting, while their home values have plummeted, reducing their qualifying amount on a reverse mortgage. Fannie Mae, in the midst of the financial meltdown, effectively increased the interest rate on reverse mortgages by over 2%. Is it possible to somehow convert 1% of that rate increase to MIP and triple the annual MIP being paid on reverse mortgages? What would that do to the budget assumptions?

Mr. Bell

I don't know you and I am not part of your organization. But having been a member of a couple of insurance industry organizations, I can appreciate your problems. When I first started at an insurance agency, the first thing they told me was I had to join the insurance trade org. and start studying for my Chartered Life Underwriter (CLU) designation. Why? Because they wanted everyone on board. That is why the insurance business has one of the best lobbies and power to deal with legislatures. When there was an attack on us, we were sent sample letters to send to our representatives. In other words we were in the fight, not just depending on the org. to do the battling for us. One thought, which may be helpful, is they let us know what positive things they were doing. I think this heads off a lot of grousing (which can never be eliminated, just minimized). Communication from org. to outsiders is important, but keeping the troops in the loop, as much as is possible is also a good idea. In any event, from what you said above, it sounds like you are doing what you can, and I agree the WSJ was overall a positive article.

dduck-
Thanks for your comments. I would venture to say that most NRMLA members, particularly those that particpate in our conferences or on our committees, are generally better informed on the industry's issues than their counterparts who choose not to participate. Our members receive an update report every other Monday on the association's policy activities, a monthly email newsletter, a bi-monthly magazine and bulletins and memoranda on various topics as they arise. Our committees are actively working on many technical servicing issues, line of credit growth calculations, tax and insurance default policy, counseling, HECM program enhancements, restructuring MIPs, eliminating the cap on the number of HECMs HUD is authorized to insure, getting the 2009 maximum loan limit extended past 12/31/09, making sure we obtain the credit subsidy required to keep the program solvent and far more topics than I can list here.

As in any case, an industry association is most effective if it is participated in broadly. NRMLA is proud to represent over 600 companies engaged in this business, including 95 of the top 100. There are many others who would benefit from participating (as evidenced by a lot of the misinformation posted on RMD), but some companies or individuals are unwilling to make the investment.

It is interesting to observe how some companies or individuals view their investment in their industry trade group to be essential and cost-effective, while others are unwilling to spend the money (or time) required to be involved. Then, there are some players who figure that we will do what we are doing anyway, and that they will benefit no matter what, so why bother contributing?

An association is not for everyone. It is for those who want to roll-up their sleeves, work alongside their industry peers, be supportive of the collective effort and build a brighter future for all involved. We don't determine who gets involved in NRMLA; it is (as is any voluntary organization) a completely self-selected group.

Mr. Bell

Thanks for the additional clarification and information, I hope non-members also read and absorb it, and possibly join your organization.
When your in a rowboat filling with water, all must bail, not just the crew.

I don't understand why people think NRMLA is going to be able to do everything for us... seriously.

Everyone needs to put in the legwork and NRMLA does more than its fair share.

dduck,

It is interesting that your view and mine are so completely divergent on the WSJ article. It is not the reporting in that article that is troubling; it is what was reported.

One reason the HECM program has had such huge support in Congress is that the program was designed to be self-paying. I was under the illusion as were many others that the budget request was a cash flow issue stemming from projected cash reimbursements for losses on prior years’ endorsements that were expected to occur in FY 2010. The best provider of historical data to this industry did some “in depth” analysis of the budget request not long ago based on this understanding. Now it is clear; the request was predicated on projected FY 2010 endorsements alone.

My concern regarding the remarks of Secretary Donovan now runs much deeper. While it is good that the new projections of home values in future years appear to be based on more realistic criteria and projected data and that the HECM budget for the following year’s endorsement is now required to be based on that data, it is disconcerting that the issue of self-pay or permanent government subsidies was not aired before Senator Patty Murray (D-Wash) raised her question. To bury this potentially fundamental shift in the nature of the program in a budget request with no upfront public airing and debate on how it should be funded seems flawed at best. If this were simply a matter of one year’s losses that might be offset against surpluses of other fiscal years that is one thing but to be willing to discuss increases in the MIP or a permanent restructuring of principal limits says a lot more.

Several questions now must be raised. If the funding of the losses inherent in the projected 2010 endorsements is expected to run more than all MIP inflows from those endorsements and earnings on those inflows based on this new data, what about the losses still inherent in the outstanding HECMs of prior years? It seems that they may be grossly underestimated since they were projected on the older data structure and the cash reimbursement from losses inheren in this pool of HECMs will be coming due more quickly than those HECMs that will be endorsed after September 30, 2009 in what is expected a far less recovered home market.

There are simply too many issues to address involving the future viability of the program, senior needs, restructuring the principal limit, the strategy about making this a permanently subsidized program especially with a Democratically controlled White House and Congress, and many other concerns. This program is truly a great one as it has stood for the last twenty years. It will be a shame if the current and future economic situation mandates even more fundamental changes in the program. Seniors truly need all the help this program can currently provide them.

I guess I'm positive about the reporting because as a prospective RM user, I found the product to sound appealing and I think many other people would agree; maybe, I just have a blind spot for the negative. (Sometimes a cigar is just a cigar.)

Except for the first paragraph, the rest is over my head.

dduck,

I can be complicated. I apologize. But then sometimes a cigar is bubblegum.

I just hope this program does not have to change to a permanently subsidized program as the response of Secretary Donovan implies. Increased MIP or reduced principal limits are difficult alternatives.

With Fannie Mae enforced margin increases and increased MIP on the horizon, HECMs may become less and less beneficial to seniors. I think what you are observing is surprise and a strong reaction.

Have a great weekend.

Freud, would disagree.
Too bad your industry can't get the hypo HECM Lite.

Caio

Good evening,

I have looked at everyone's comments so far. Some very good points brought out, I commend all of you. Critic and Peter Bell, your points are well received. In this economic environment I don't see any other way to safely handle this, except seek a credit subsidy to cover the loss, just as they have proposed it in the administration’s initial budget proposal.

To raise the MIPs, so that more money would come to eliminating the need for a credit subsidy, or to reduce the principal limit factors. could be disastrous to the survival of the HECM program.

Can you imagine a $400,000 home with a 2.5% MIP, $10,000 plus all the other costs? The senior will have no use for a Reverse Mortgage, they will have a Heart attack at the Table and die on us!

The Reverse Mortgage industry can't hang in there with all these changes that have been made and those proposed. We are going to destroy one the greatest programs that allow are senior home owners to improve their quality of life and maintain their dignity.

We have alternatives, the program can survive, it needs to survive. We need to leave it alone for a while. We need to give it breathing room. To many changes to quick. Many changes being made by people who do not understand the industry. Too much corruption and too much politics. It is sad to see all this is happening right under our noses.

Peter Bell said it well. He said, there are times and places in which the government should step in and subsidize some areas of commerce to keep economic activity rolling. This is one of those times where such action clearly is needed to keep tools such as the HECM functioning smoothly. Very well said sir, very well said.

I wish you all a good night,

John A. Smaldone

It appears to me that HUD is getting set to rid the FHA of the HECM by raising MIP and adjusting the principal factors to reduce the net principal limit thus defeating the purpose of the HECM - keeping seniors in their homes. The goal appears to be to transfer reverse mortgages to the banks & other financial sector predators who will perpetrate equity stripping on senior homeowners because there will be no federal oversight protecting seniors needing reverse mortgages to live their lives in dignity.

HUD's leadership seems to be ignoring the purpose for which it was created - to stabilize and revitalize communities; to reduce defaults and preserve neighborhoods. The financial sector, banks & others, which caused the ecomomic collapse, got bailed out and was made whole. But, when it comes to protecting seniors devastated by the economic collapse, HUD is taking a hard line against the senior homeowner. Senior homeowners do not have the luxury of time to recover from these losses. They need cash from the HECM to live out the rest of their lives in their homes.

Congress should order OMB to do a net cost analysis on the MIP fund from inception. In one article, HUD wanted to ignore the accumulated MIP fund and just compare results of the inflows & outflows on an annual basis. In 2008 and 2009 it could be a net outflow, thus supporting the treasury's justification for rate increases. However, if OMB finds that HUD raided the HECM fund for other purposes or made false statements regarding the MIP fund, the leadership should be censured and replaced.

Owen McKeon
Reverse Mortgage Counselor

Help needed. Who and where would be the best place to email/snailmail my (and hopefully others) comments, like Mr. McKeon's, to oppose the potential MIP rate increase? I will, of course, cc my congresspeople.

Thanks

In response to dduck asking who to write to, I would suggest that all just sit back and watch for the moment. Sec. Donovan has voiced his support for the program and indicated his desire to obtain the needed subsidy. At a Congressional hearing, he responded to a question by saying that they could look into alternatives such as raising MIPs or lowering principal limit factors, but he did not commit himself to doing that. he only siad they would look at it.

My advice is to give him time to do his job. hen you start a letter writing campaign to congress, since so many participants in our business have no idea where their representatives stand on various issues, they end up writing to those who are opposed to the program (and perhaps FHA more broadly) simply giving them fuel for their arguments to do away with such programs. More harm may be done by writing to the wrong folks than by simply holding off for the moment.

Mr. Bell

OK

If government would put back the 13.5 Billion dollars taken from the FHA fund then there would be no need for any subsidies. If current trends continue there will be 2,000,000 seniors kicked to the curb within 5 years.