I would love to hear from the “informed” what is the significance of this release. Has the fund been adequately funded, or inadequately funded – the latter being my impression which was causing so much discussion as to whether premiums need to be increased, or guarantees decreased.

As I indicated in previous posts, the architects of the HECM program designed the program to be BREAK EVEN over the LONG TERM!!!
As the information on page 56 of the reports shows: 452,196 loans out of 571,709 HECM loans are still active (from the program's inception) with a total outstanding balance of about $60 billion, with a corresponding max claim amount of about $103 billion. This means that since the beginning there still about 79% of loans that are active so about 21% have terminated and the balance to max claim amount ratio of active loans is about 58%. Not bad at all!!!
More interesting is to note that the subsidy expense table on page 60 where for 09 we see a negative HECM subsidy rate of 1.37% and for 08 we see a negative rate of 1.90.

The glaring question is: after looking at these numbers how could such a pessimistic analysis was made by the OMB which triggered the 10% reduction to the principal limits??
Just looking at the long term view and volume is it possible to end up a positive rate of subsidy for 2010?? I mean the change in subsidy rate for 08-09 was .67%. Even if you assume twice the subsidy rate dropped you would end up at -1.37% (09) + 1.34% (change) = -.03% for 2010. These are all assumed with the old PL factors!!!
It is becomming obvious that the folks calculating the forecasts either are not well versed in the science of probability and stochastic analyis or there is some other political motive behind the scenes.

I would love to see the numbers for 2010 next year with both the 10% hair cut and WHAT IT WOULD HAVE BEEN without the 10% hair cut. I am sure we wont see the latter for obvious reasons.

Mr. Torres,

What significance does the MCA versus the outstanding balances actually have as to potential losses? Your conclusion is extremely misleading.

The MCA reflects the total of all MCAs as they existed at the time of the related closings. The only true measure of the condition of the HECM fund are the sum of the differences between the value of each home and the current balance due for each related HECM compared to the cash available to pay off any net loss.

For example, in 2006 an actual HECM was made that today has a $220,000 balance due and a MCA of $300,000. The only trouble is the market value of that home is less than $130,000. FHA has collected a little less than $10,000 of MIP on the home in the example for which it has a potential liability of $100,000. Here the balance due is just a little over 70% of the MCA yet the program is at risk for about $90,000.

This is the problem with using old data. Unlike you I take no comfort in the data in which you so easily find comfort. The total balances due versus the MCAs provides no insight whatsoever into the current health of the program.

While I agree with your view on the poor decision by the Administration, your grounds for reaching those conclusions are based on very weak standards. It is the reasonableness of the appreciation rates used that must be questioned not some specious argument based on irrelevant and dated information.

Mr. Torres,

I really do not have the time to fool around with your wild claims. To conserve time I will analyze to a limited degree just one argument you present in your last comment

You state: “Again rather than making statements that are so short sighted, lets wait until the 2010 reports come out and lets see if we end up with a very small subsidy rate (assuming negative after the 10% hair cut).”

This is your conclusion. It clearly shows you do not understand the difference between the information contained in the budget and the information contained in the financial statements. The so called 10% hair cut (your term, not mine) is based on the budget report.

The budget projects on a discounted cash flow basis what the total MIP income net of estimated losses from terminations will be from all HECMs estimated to be endorsed in the fiscal year ending September 30, 2010. It looks at this cohort of HECMs and only this cohort of HECMs. No other MIP or termination losses from HECMs endorsed from any other fiscal year are reflected in this estimate.

The audited management report with a limited distribution exception is much different. It looks at MIP income due from all HECMs (no matter what the year of endorsement) for that particular fiscal year and only that fiscal year and the estimated losses from terminations within that particular fiscal year and only that fiscal year no matter when the related HECM was endorsed. It is based solely on historical information.

Mr. Torres, the two reports simply do not relate. Now I know why you are so adamant about things you really do not understand. It is now plainly evident.

The information to determine if the budget estimates are reasonable will not be available for at least the fiscal year ending September 30, 2020, if then. To be relevant, the vast majority of HECMs endorsed during the fiscal year ending September 30, 2010 will have to be terminated so that we are looking at historical data with limited projections. How many HECMs in the cohort endorsed during the fiscal year ending September 30, 2010 do you really anticipate will be terminated by September 30, 2010 or how much of the total MIP to be generated by these HECMs will have been generated by that date?

I truly do not believe you have read what I write. It is and has been my estimate that if no new HECMs were ever endorsed, the program as a whole will have proved to have produced a slight net loss to the federal government. My position on the current outstanding HECMs is much, much different. With the number of times I have addressed this subject on this website, I thought you would know my position by now.

Mr. Torres,

Your first and second comments discuss information from the report contained in the article immediately above. It is the only report to which you refer until you come to your third comment. Your third comment jumps to an actuarial study by IBM highlighted in an earlier RMD article.

The report in the article immediately above is the annual report of the management of HUD. HUD auditors’ opinion begins on Page 93 of the annual report (or page 98 of 129 of the .pdf file) and on page 98 of the annual report (page 103 of the 129 pages of the .pdf file) the auditors state under a section titled “Distribution”: “This report is intended solely for the information and use of the HUD OIG, the Management of HUD and FHA, OMB, GAO, and the Congress of the United States, and is not intended to be and should not be used by anyone other than these specified parties.” It is signed by the CPA firm of Urbach, Kahn, & Werlin, LLP on November 9, 2009 in Arlington, Virginia. In CPA parlance that is known as a limited distribution list exception.

You can find the report referred to in your first two comments and in the current article above at http://www.hud.gov/offices/hsg/fhafy09annualman…. The article you refer to in your third comment is not the work of a CPA firm and no one is told not to use it.

Again you stated in your second comment: “Again rather than making statements that are so short sighted, lets wait until the 2010 reports come out and lets see if we end up with a very small subsidy rate (assuming negative after the 10% hair cut).” So what reports were you referring to in your second comment?

I prefer believing your comments are not mere ramblings. Some of your insights have been quite useful. Can you stick with the annual report in the article above? I understand simple statistical theory; I was a math major emphasizing statistically theory in upper division. It is great in justifying projections but worthless in justifying projections when historical data is readily available. It certainly does not prove the validity of a projection; only historical data can do that.

If you have any question about my CPA, you can go to the California Board of Accountancy website, click on to the license lookup, and verify it there. You can also go to the CSA website and verify me as a CSA and the California Department of Real Estate and verify that I am a licensed real estate broker. As to you, how do I verify who you are or what credentials you hold?

Mr. Veale,

I agree with Critic that we best put our efforts together rather than engage in sort of negative attacks back and forth.
Just for clarification: I thought that you were referring to the Actuarial report as the audited, short distribution report. That is the way it came accross in your post.As far as to why I keep looking at the algorithm versus the actual data (ie what you call historical data), my view point is that the algorithm is used as a prediction tool, while the data (or historical data as you call it) is the validation of that prediction tool. Keep in mind that my brackgound is in engineering, developing theoretical tools and validating them against experimental data. That was a long time ago. Point is: if the data doesnt validate the algorithm then some changes or tweaks may be required. It seems like the administration and others are beating the drum that the program is in bad shape when they fail to validate the tool with the data coming in.

As for credentials:
I hold an BS in aerospace engineering, worked for National Aerospace and Aeronautics Agency (NASA) for 10 yrs developing advanced hypersonic aerodynamics and propulsion models.You may find a NASA tr report out there but most of my bibliography is not in the open.
I hold a MS in Computer Science and worked 3 years for Telcordia (Formerly Bellcore Labs) as a consultant to several large Domestic and International Telecom Carriers
I worked as Consultant to NASA (SAIC) working on developing risk models for the lunar and mars mission (including ARES) before the concept became a reality. This is where I learned a lot about risk analysis.
I works for one of the 3 top Reverse Mortgage Lenders on their retail side. This is where I learned the RM bussiness for 3 yrs.
I have worked for an OCC regulated institution for the last 2 1/2 years as RM Sales Manager.
I have registered with the NMLS system but right now the system doesnt allow the public view just yet.

So as you can see I am not just a RM originator but also a “rocket scientist” who does RM loans. So I guess that is why I look at this program with a slight different point of view than others.

I think you have impressive credentials as a CPA and RE broker.I never questioned those at all.

Cheers

Mr. Torres,

I appreciate those who stand up for what they believe. I do not appreciate those who try to be less than truthful in hiding what they did write.

I cannot understand how when the thread is on the management report discussed in the article and I quote you, you assume I am focusing on an IBM prepared actuarial report that was not mentioned in my comment or in the comments (including yours) or the article that immediately precede my first quote of what you wrote. While people make such mistakes, somehow your claim fits a different pattern.

In the last comment addressed to me you write: “I think you have impressive credentials as a CPA and RE broker.I never questioned those at all.” Here is what you said in your second comment above: “Your argument lacks theoretical rigour and frankly if you are an accountant please stick to accounting theory.” In fact you did question if I was an accountant at all so I responded that I am a CPA giving you the government entity where you can verify that I am what I claim and more.

You then go into great lengths at giving all but unverifiable education information and job experience. You provide exhaustive information in an attempt to impress when that was not asked of you at all. Worse, you intend to insult and then when exposed, childishly deny your insult.

My esteem for what you write is in decline. You deflect and then try to take the high road. You may not be bothered by my rebuke but while not disappointed with your intellect, I am disappointed with your intellectual integrity. Even though in the past I found your discourse valuable, I must decline any further exchanges on this website.

Mr. Veale,rnrnI agree with Critic that we best put our efforts together rather than engage in sort of negative attacks back and forth.rnJust for clarification: I thought that you were referring to the Actuarial report as the audited, short distribution report. That is the way it came accross in your post.As far as to why I keep looking at the algorithm versus the actual data (ie what you call historical data), my view point is that the algorithm is used as a prediction tool, while the data (or historical data as you call it) is the validation of that prediction tool. Keep in mind that my brackgound is in engineering, developing theoretical tools and validating them against experimental data. That was a long time ago. Point is: if the data doesnt validate the algorithm then some changes or tweaks may be required. It seems like the administration and others are beating the drum that the program is in bad shape when they fail to validate the tool with the data coming in.rnrnAs for credentials:rnI hold an BS in aerospace engineering, worked for National Aerospace and Aeronautics Agency (NASA) for 10 yrs developing advanced hypersonic aerodynamics and propulsion models.You may find a NASA tr report out there but most of my bibliography is not in the open.rnI hold a MS in Computer Science and worked 3 years for Telcordia (Formerly Bellcore Labs) as a consultant to several large Domestic and International Telecom CarriersrnI worked as Consultant to NASA (SAIC) working on developing risk models for the lunar and mars mission (including ARES) before the concept became a reality. This is where I learned a lot about risk analysis.rnI works for one of the 3 top Reverse Mortgage Lenders on their retail side. This is where I learned the RM bussiness for 3 yrs.rnI have worked for an OCC regulated institution for the last 2 1/2 years as RM Sales Manager.rnI have registered with the NMLS system but right now the system doesnt allow the public view just yet.rnrnSo as you can see I am not just a RM originator but also a “rocket scientist” who does RM loans. So I guess that is why I look at this program with a slight different point of view than others.rnrnI think you have impressive credentials as a CPA and RE broker.I never questioned those at all.rnrnCheers

Mr. Torres,rnrnI appreciate those who stand up for what they believe. I do not appreciate those who try to be less than truthful in hiding what they did write.rnrnI cannot understand how when the thread is on the management report discussed in the article and I quote you, you assume I am focusing on an IBM prepared actuarial report that was not mentioned in my comment or in the comments (including yours) or the article that immediately precede my first quote of what you wrote. While people make such mistakes, somehow your claim fits a different pattern.rn rnIn the last comment addressed to me you write: u201cI think you have impressive credentials as a CPA and RE broker.I never questioned those at all.u201d Here is what you said in your second comment above: u201cYour argument lacks theoretical rigour and frankly if you are an accountant please stick to accounting theory.u201d In fact you did question if I was an accountant at all so I responded that I am a CPA giving you the government entity where you can verify that I am what I claim and more.rnrnYou then go into great lengths at giving all but unverifiable education information and job experience about yourself. You provide exhaustive information in an attempt to impress when that was not asked of you at all. Worse, you intend to insult and then when exposed, childishly deny your insult. rnrnMy esteem for what you write is in decline. You deflect and then try to take the high road. You may not be bothered by my rebuke but while not disappointed with your intellect, I am disappointed with your intellectual integrity. Even though in the past I found your discourse valuable, I must decline any further exchanges on this website.rn