For those that want to understand the roots to how we got here I would recommend that you review the post in the following article:

http://reversemortgagedaily.com/2009/05/07/obam…

It all started when both AARP and NRMLA and the politicians agree to tranfer the HECM program from the GI fund to the MMI fund as part of the Housing and Economic Recovery Act of 2008 which also brought us higher max claim amount limits and capped orignation fees, among other things. According to the statute, sec 2118. MUTUAL MORTGAGE INSURANCE FUND, paragraph 4:

ANNUAL INDEPENDENT ACTUARIAL STUDY- “The Secretary shall provide for an independent actuarial study of the Fund to be conducted annually, which shall analyze the financial position of the Fund. The Secretary shall submit a report annually to the Congress describing the results of such study and assessing the financial status of the Fund. The report shall recommend adjustments to underwriting standards, program participation, or premiums, if necessary, to ensure that the Fund remains financially sound”

As you can see, the White House has no option but to report EACH year, the status of the fund. Since now the HECM program is under MMI then its shortfall is visible to everyone, especially congress. I dont recall that the GI fund had similar language or requirements. So if you want to blame someone then ask the question to the lobbyst and politicians who were involved in those negotiations. Like the saying goes: dont fix what it aint broken. Sometimes when negotiating a bill, you better know what you are getting into. Let this be a bitter lesson to those involved in the past legislation.

Now as for the current bill: The HECM insurance program is based on a break even analysis (see the reference post) over the life of each loan statiscally speaking. My concern is that the proposed bill doesnt specify how the reduction or change in principal limit factor will be carried out. Is the change or reduction going to be applied as a fixed percentage change accross all age ranges, is it going to a function of the distrubion, by age, of existing population of HECM loans, or is a new floor going to be applied to the expected rate? Hmmm…. many questions. The devils are going to be in the implementation details. Each of these possible solutions would penalize a certaing segment of the borrowers depending on their needs.

Now as for an alternate solution: Why not take a “balanced load approach”? That is, have a bi-model or hybrid approach where borrowers would have the choice of obtaining their loan with the reduced PL factors and the current MIP premium profile (2% of MCA Upfront + .5% periodic yearly ) or get obtain the loan with the existing PL factors at a modified (increased) MIP premium schedule. This way, the borrower has the choice of obtaining smaller loan proceeds with same closing cost profile as today or getting same loan proceeds as today with a corresponding higher premium costs. This way in fact you would eliminate the subsidy, keep the pools of propective borrowers intact (including HECM refis) and keep the relevance of the program. By the way, the same act of 2008 authorizes the Secretary of HUD to change the premiums accordingly as follows in paraghaph 6:

“ADJUSTMENT OF PREMIUMS- If, pursuant to the independent actuarial study of the Fund required under paragraph (4), the Secretary determines that the Fund is not meeting the operational goals established under paragraph (7) or there is a substantial probability that the Fund will not maintain its established target subsidy rate, the Secretary may either make programmatic adjustments under this title as necessary to reduce the risk to the Fund, or make appropriate premium adjustments.”

The above proposed solution will still involved the same and more, implementation issues than in the current bill but it will be a fair approach.

Thus there you go, not just complaining about our government or our industry but suggesting solutions. NRMLA better get active and I mean ACTIVE about this bill if we want to keep helping our seniors.

So when you close you eyes and imagine who it might be that would just swap the terms of the sentence I highlighted in your original comment, who do see?

In your follow up comment you say:

“by reducing or adjusting the principal limit factors based on actual shortfalls in the mortgage market”

What actual shortfalls are you talking about and what brought them about? My understanding is that by far the leading cause of RM default and subsequent hit to HUD is property tax and insurance non payment. If more RM advisers and lenders actually read the Loan Agreement, Note, and Mortgage and therefore understood the contractual obligation of the homeowner, the lender and HUD, then properly disclosed the homeowner's obligations most of the need for any “subsidy” would go away. If you are not aware, the new counseling protocol will help in this regard.

And who coined the phrase “subsidy” anyhow? And why are some in the industry lending it credibility by repeating it? The $900 million is not a subsidy. As I understand it it's a shortfall in HUD's RM insurance pool. If looked at in terms of HUD's overall insurance pool this amount is drop in the bucket. And wouldn't it make way more sense to increase the MIP while eliminating State and Local Taxes and Stamps on RM's rather than, or in conjunction with changing the factors?

There are some huge changes taking place right now and they will continue. The major lenders are realizing that to avoid killing the golden goose it is they that must reign in on advisers and correspondent lenders that have no clue about the inner workings of the RM and no clue about their role in it's value to homeowners. The lenders know the score and where the problems lie. It's like anything else, if you control the production but not the distribution, you are in for trouble. They are wisely gaining control over distribution. Lenders are tightening up on correspondent relationships. Recent regulatory changes at the state and federal levels that are not only supported but strongly lobbied for by the big lenders have made it more expensive to be a correspondent lender or broker, and there is more to come. Look at the endorsement statistics closely and you will see the trend is to more production by the bigger lenders and less by correspondents and brokers. You must know that the cost of generating a closed loan has soared over the past two years or so. The well capitalized lenders that do not rely on outside sources of capital will survive and others won't. See SLN and 1st Reverse. There will be more departures in the coming months. A few smart lenders are investing in proven advisers and their marketing efforts to a greater extent than ever before. This is atwo pronged attack designed to squeeze out the poorly capitalized and or problem lenders. It is obviously working. To some extent Ms. McCaskill's charade is helping the industry. I am not suggesting that there is any direct involvement by industry players, however I learned long ago that there is always more going on beneath the surface then above. I have heard barking from the industry but not sensed all that much conviction.

In terms of FHA or FNMA leaving it's only a matter of time and not much at that, that FNMA will no longer be a player. It's a fact. GNMA will take up the slack. We recently saw the CMT go away and we will soon have just the fixed product. Get used to it. If you want to see the future of the RM in the U.S. go down under to Australia. The RM is an insurance product, a financial product best understood by insurance companies and financial service companies (who was it that owned Financial Freedom 10 years ago?). Within 5 years FHA will not be needed and we had better be working for a major insurance/financial services company or have another source of income because they will control the production and ALL the distribution.