Nearly 20% of the Federal Housing Administration’s Home Equity Conversion Mortgage loans outstanding have a greater loan balance than the property is worth, but the worst may be over for FHA’s “underwater problem,” recent commentary published by New View Advisors states.
Having stated in a recent piece of commentary that FHA’s outlook was “still too rosy” when it reported in November on the state of its Mutual Mortgage Insurance (MMI) fund, today, New View says that despite having an economic value of -$5.4 billion, the HECM program stands to gain, as long as the housing market sees a rebound.
“Barring another housing catastrophe, the worst may be over,” the analysis states. “If so, the current position of the HECM will improve each year, as FHA’s HECM risk profile reflects an increasing percentage of the new, more conservative standard HECM loans and HECM Savers.”
The estimated negative value of the HECM portfolio can be attributed in large part to HECM loans originated from 2005 to 2008, New View says. And because of those loans paying off over time, the numbers will get worse before they get better.
However, several months of new loan production of improved HECM products indicate that the MMI fund has avoided the deterioration that could have occurred, New View writes. “Combining FHA’s estimates of what will happen with our estimates of what has happened, the program’s net economic value since inception now stands at about -$5.4 billion. We think that FHA’s current projections are a bit optimistic, but even using their old numbers, the program’s economic value held steady.”
Read the New View Advisors commentary in full, with detailed calculations.
Written by Elizabeth Ecker