New Phase for Reverse Mortgage Business

Larry Tiffan is concerned. The reverse mortgage consultant from Scottsdale, Arizona wonders why the program he sees helping so many senior clients can be causing problems for its backers and drawing bitter attacks from public officials.

Tiffan, who works under the aegis of Traditional Home Mortgage, says the math doesn’t add up. “If the average life of a reverse mortgage is seven years, how could the government insurance fund be losing money?” He speculates that the HECM program “now in its 20th year, had an insurance fund commingled with other risky programs,” notably subprime that “ate up all its surpluses and then some.” Why, he wonders, “are they now asking reverse mortgages to pay [the resulting] projected deficits in the next fiscal year.”

Added to these woes, notes Tiffan, are criticisms from public officials who are unfairly taking aim at reverse mortgages. “They have chosen a few isolated and awful war stories of how seniors have been hurt by unscrupulous people.” It has produced “negative images among reverse mortgage people that we’re battling everyday. There is more adverse publicity and it’s getting worse.” Rarely do the media draw attention to the extraordinary high level of customer satisfaction of those having a reverse mortgage as compared to other loan products.”


Further, he says, the “downturn in property valuations” nationwide has made it harder to look at the amortization schedule and say “probably at the 15th year there is risk of a loss.” Tiffan predicts a “new phase for the reverse mortgage business in which seniors will work with lenders to reduce the balances on their first mortgages proportionate to the appraised value.”  This action, he concludes, might then make refinancing to a reverse mortgage a viable option for many seniors.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at

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  • Speculation of this nature is irresponsible. Just because certain individuals are not aware of how to compute profits and losses does not mean their ridiculous speculations should be quoted. It would be better if they stopped their vain overreaching and did some homework.

    We provide sophisticated financial products to seniors. This kind of wild speculation by a “consultant” (probably a “certified” one at that) reflects poorly on us as an industry and is cause for reasonable concern among our detractors.

    No one at FHA or HUD is nefariously offsetting forward insurance losses against reverse profits. It is disgusting to read this accusation.

    This article is as bad as the ranting of the HECM detractors. While it is fitting for comments, it is not a newsworthy story. Like a horse with a broken leg, it should be put down and out of its misery. I for one appeal for better articles than this. How can it categorized as “News?

    Everyday, RMD does better than this and as a news source, must do better than this.

    • Cynic,

      I agree with pretty much everything your saying, but a lot of people in our industry feel the same way as Tiffan.

      Feedback is always appreciated and noted. Thanks for your support.

      • The Cynic can speak for himself/herself; however, while still online, I wanted to reply.

        You are right. Too many in the industry feel as Mr. Tiffan does. It is too bad that unlike the two of us, they were not at the NRMLA Policy Conference.

        A bothersome issue with this article is no one else is quoted putting far too much attention on “the statements of Mr. Tiffan” instead of the statements themselves; however, having said that, it is one thing to speak these things to friends and completely another to indulge in being quoted and not regulating yourself in what you say.

    • Seeing how you are hit or miss and don’t seem to read the news here as a regular rule! You might want to go back to this article:

      And refer to the section that discusses the reclassification of the Insurance Fund and what is precipitating the changes in the Principal Limit. It is definitely a comingling with HECM’s and the rest of what FHA insures and the overall cost to the country and not just how this affects HECM’s in particular. Now i’m not sure who Jim Veale is, but the quoted information seems to be pretty detailed if it’s made up. I would assume that Larry got his opinions after reading this artile (seeing how he forwarded it to me some time ago to read from this website.)

      I hope that this will provide the quoting of a noteable source to help ease your understanding.

      As to the rest of the article, It’s a good comentary as to the battles we all face in helping people to get over the stigmas surrounding Reverse Mortgages and selling them day in and day out.

  • Mr. Tiffan needs to explain the source of his claim that the HECM fund is “losing money.” It is not. What responsible leader in this industry has made such a claim? Not even Senator McCaskill has made such a statement.

    Commingling is a serious accusation and should not be spoken lightly. If Mr. Tiffan has no proof of such activity, he should make apologies to those at FHA and HUD for making such a scandalous claim. His statement is ridiculous and should be retracted.

    Then Mr. Tiffan claims reverse mortgages will be paying for the projected deficit for the cohort of HECMs to be endorsed this fiscal year. He no doubt means, seniors will be paying…. If the MIP were restructured, then HECM borrowers would be literally paying the $798 million deficit; however, under the FHA mandate, seniors are not literally paying more but they are “paying” due to lowered principal limit factors.

      • Rev_Erse

        The HECM appropriations process and its history are somewhat complicated. This explanation is nothing more than a simple overview.

        To understand the appropriations process one must suspend all normal considerations on what is fair or reasonable. It is what it is, the appropriations process. History, prior profits, reasonable methodologies — none of that comes into play in the calculation; however, such considerations can come into play in fighting for a subsidy.

        The first step in the approprations calculation is to place the entire cohort of HECMs that FHA estimates which will be endorsed in the fiscal year ending September 30, 2010 into a “vacuum”; it is as if FHA will endorse these and only these HECMs in its entire existence. Any endorsement from any other fiscal year is excluded from the computation.

        HUD then mathematically estimates if that cohort will result in an overall gain or loss. Based on when those gains or losses are projected to take place they are discounted back to October 1, 2009 to determine as of the beginning of the fiscal year how much this cohort will cost or benefit the federal government. In simple terms that is what goes on. Now let’s look at how the $798 million came into being.

        Up until a few years ago, HUD ran its numbers using the basic assumptions it uses in its financial model. Then HUD was criticized for not using more up to date information for home appreciation rates. HUD took the criticism and went to outside independent advisors to do just that. Despite using those lower expected home appreciation rates, the calculation still came up negative credit subsidies. The same was true for the appropriations bill for the fiscal year ending September 30, 2010; however, out of nowhere a change occurred.

        The GAO study on HUD released in July tells the story on why there is a $798 million positive credit subsidy. It seems the new Administration did not like the home appreciation rates used by HUD. The Administration required that HUD use projected inflation rates plus one-half of one percent. Why? There was no explanation in the GAO study but it resulted in the $798 million positive credit subsidy request. Some believe that this was a power play by the Administration.

        This is the first time I am aware that any Administration has interfered in the HECM appropriations process. Sad to say, it is and will be seniors who suffer. The story is on Page 31 of the GAO study and can be found at:

    • Why was an additional 10% deducted from the cash available cash for all seniors seeking a RM?
      They claim because of losses absorbed by the FHA. What losses, even Barney Frank said that the RM is a money maker for the FHA. Instead of withholding 10% across the board, why not adjust the MIP to reflect risk of default and foreclosure? The higher the debt in relation to homeowner equity at inception of the RM should generate a higher MIP premium on the debt. Why should all seniors be penalized because of the few that default?

      • Mr. McKeon,

        Who is this mysterious “they” you are referring to? “They” got it wrong. At this point in history, Mr. Frank got it right when he called the program a money maker but that does not mean it has or will ever make any profit.

        The dot com companies during the prior decades had lost of cash, lots of debts, and lots of losses. Having cash does not reflect whether one has accumulated profits or not. It simply means one has cash. It is always preferable to have cash than not.

        Penn Central had lots of profits, some debt, lots and lots of illiquid assets, but no cash. It went belly up because it did not have cash to pay its bills.

        The MIP collected in the past was collected to pay the claim on losses to be incurred in the future on the already existing and outstanding HECMs. What that amount will be is the domain of those who do such projections; however, the program is designed to break even over its life. Although not a prognosticator, based on current home values and appreciation trends for homes that are security for HECMs, HECMs originated between 2005 and 2009 are at the greatest potential for loss.

        Some believe that right now if the entire program suddenly came to a screeching halt, the net result would be an overall net loss. Oh course, if the home appreciation rates return over the next few years to their post 1950 average rates, it is also believed that the imbedded losses would evaporate.

        Please read through my reply just above yours. There you will find that this debate has absolutely nothing to do with anything other than the anticipated ultimate overall net losses on the HECMs to be endorsed during this current fiscal year (ending September 30, 2010). That cohort will no doubt be less than 150,000 new HECMs in total. The net losses from that cohort probably will not start being incurred until some time around 2015.

        The government is just projecting how much it needs to set aside to pay the claims on the net losses coming from the cohort of HECMs that will be endorse during this fiscal year. By reducing the principal limits by 10%, HUD and Congress are saying no funds will be required because that reduction will result in no net losses being incurred. Whether that is true or not, only time will tell.

        Why does adding more MIP on a debt on which HUD knows they will have losses, make any sense? All that means is the MIP they collect now will be add to the losses of the future. Then add interest to that increased MIP and the situation only compounds. Can you explain why that suggestion makes any sense at all?

  • What? …”seniors will work with lenders to reduce the balances on their first mortgages proportionate with the appraised value.” No kidding. The question is will the banks work with seniors? It's a great concept but will only really work if the original mortgages are with BofA or Wells. They are the only lenders that might have any incentive to take a hit on a forward in order to do the reverse.

  • Reverse mortgages were bundled in with other types of mortgages, including sub-prime loans in many of the securitized mortgage pools that investors bought and lost money on. That's a prime reason why the sub-prime mess affected the reverse mortgage industry. But I recall that HUD has some way of differentiating between forward and reverse mortgage coverage in the insurance fund that they operate.

    • Mr. Peters,

      What do securitized mortgage pools have to do with FHA directly? The pools are a means to facilitate the sale of mortgages to investors.

      If there is a loss at termination of a HECM, FHA pays out the claim to the various note holders. If the HECM is assigned, the investors have to facilitate the transfer. How does the pooling of sub-prime loans with HECMs impact that process? There could be 50 bonds holding securitized interests in one HECM but HUD would only pay for the total loss divided up between the fifty owners.

      If the pool suffered a loss from a sub-prime loan, they have no right to make a claim against the HECM insurance. So how would the sub-prime loss in the pool impact the HECM insurance pool? Of greater concern should be for the bond holders knowing that those who managed the bond fund were making the proper claims.

      I probably am not getting what your point is. Can you please explain a little more?

  • Yes , we are in a new phase of the reverse mortgage business. With the decrease in property values we are seeing numerous senior homeowners who do not qualify for the reverse mortgage. This is a problem that can be solved by working with the lenders to take a principle reduction allowing the senior homeowners to qualify for a reverse mortgage. I have helped over 18 senior homeowners in Michigan get principle reductions this year, some of them very large, and pay off the new balance with a reverse mortgage. Two of the homeowners had never been late on their mortgage payments. I have become successful at negotiating principle reductions by studying the short sale process. All you are doing is substituting the buyer in the short sale with the reverse mortgage. It can be a long and frustrating process but I feel it is our fiduciary reasonability to help seniors that are backwards on their homes but we need to educate ourselves to be successful. It is also a tremendous opportunity to portray the reverse mortgage industry in a positive light.

  • Yes , we are in a new phase of the reverse mortgage business. With the decrease in property values we are seeing numerous senior homeowners who do not qualify for the reverse mortgage. This is a problem that can be solved by working with the lenders to take a principle reduction allowing the senior homeowners to qualify for a reverse mortgage. I have helped over 18 senior homeowners in Michigan get principle reductions this year, some of them very large, and pay off the new balance with a reverse mortgage. Two of the homeowners had never been late on their mortgage payments. I have become successful at negotiating principle reductions by studying the short sale process. All you are doing is substituting the buyer in the short sale with the reverse mortgage. It can be a long and frustrating process but I feel it is our fiduciary reasonability to help seniors that are backwards on their homes but we need to educate ourselves to be successful. It is also a tremendous opportunity to portray the reverse mortgage industry in a positive light. I am willing to share my knowledge with other reverse mortgage professionals, even if you are in my state. I can be contacted at

  • Critic:

    There is no connection between the bonds and the HUD mortgage insurance fund. I just thought that if by chance Mr. Tiffan was confused, that confusion might have come from knowing that pooling did occur on the securities side and possibly not understanding that pooling did not occur in the HUD mortgage insurance program.

  • good discussion:

    1) The $798 million was a PROJECTED shortfall for 2010. Ther never has been a loss and I hope that the HECM premiums will be more than enough to handle any claims.

    2) I agree with Mr. Tiffan's sentiment (eventhough some of his statements are unproven) that HUD made the wrong call to reduce limits by 10% accross the board. That was ridiculous and only hurts many of the people that need this the most. Increasing premiums for certain loan parameters would have been a much smarter move.

    • Mr. Pinter,

      What choice did HUD have? The House bill required the reduction of principal limits; so did the Senate bill. Your argument is with Congress, not HUD.

      If HUD had done what you suggest Congress could have answered in the final appropriations bill by doing more damage to the program. Early in the appropriations legislation the House Appropriations Committee directed HUD to be prepared to reduce principal limits; they meant it.

      Why should all of the borrowers pay $798 million in more MIP just to take care of a flagrant power play by the Administration? It will be much larger when interest is added in, maybe closer to $1.2 or 1.3 billion in total. I do not understand your logic.

      Please describe the parameters you believe to be the smarter move. Are you suggesting a partial insurance fee increase based on risk? Do you have any idea what that would amount to? If you spread it among the 20% who would not otherwise qualify, you risk all of the $798 million among the riskiest borrowers. Then if you add in the interest, the problem only intensifies.

      HUD is not foolish or stupid. Their reasoning while maybe not yours was the smarter move in the eyes of many of us.

  • Wow – Tiffan's comments have really stirred the soup. A simple suggestion: Mr. Veale is a highly respected person in the reverse industry and is astute with numbers. Perhaps he, or someone else, could furnish the total income received by the insurance fund from the senior community in the form of the initial mortgage insurance premiums and the ongoing monthy charge on the account balances. Assuming this information is available, what is the running total since the inception of the reverse mortgage program and how much has been paid out in claims? That will settle Tiffan's implied speculation that the fund has been self-sustaining (premium income minus loss payouts) or if he's guilty of smoking the soon-to-be-legal stuff! And, by the way, we still allow free speech and opinion in this country – don't we?

  • I think everyone, including Mr. Veale, HUD and Congress would agree that the HECM program has been more than self sustaining until now. The issue is whether the drop in home prices will cause the program to have its first shortfall in 2010.
    Mr. Veale, while you say that “many” feel that the 10% drop was the smarter move, I haven't seen that sentiment at all. NRMLA was lobbying hard for no limit reduction and a new MIP structure. Feel free to ask them what their proposed structure would have been, but I, and in my opinion, many others in the industry, firmly believe that a 10% limit cut across the board does more harm than it helps.
    I agree that program possibly needed tweaking so that forecasts would show it coming out even, but this one was too drastic. Congress had not agreed on a 10% cut either and if a viable alternative to limit cuts was proposed, they may have not required them at all.

  • Mr. Pinter,

    I respectfully disagree with your statements and strongly object with associating my name with any of your conclusions.

    You claim that my attitude about the 10% reduction is unique and that NRMLA differs. Yet Mr. Peter Bell stated on page 4 of the September-October 2009 issue of the Reverse Mortgage magazine (the official monthly publication of NRMLA). “Other times, what seems like losing as it is happening, can turn out to be a big win. I’m beginning to think that might possibly be the case with the outcome of the FY2010 HECM appropriation discussion and HUD’s response.” He then goes on to describe why it is potentially such a big win. You need to become familiar with his statements.

    Like Mr. Peter Bell and many others in NRMLA, I believe that the MIP should be restructured. That position was one of the principal driving factors behind the MIP discussions with HUD. Being a member of the NRMLA Congressional Relations Committee, this is an issue I am extremely concerned about. On January 21, 2009, RMD published an article where I present another way to adjust the MIP. You can find it at:

    Who said Congress agreed on 10%? That was a HUD estimate based on the House bill. Please do not twist my words. I simply stated that both the House bill and the Senate version mandated reductions. Although the Senate named a percentage, the House did not; the House left it up to HUD to determine that percentage.

    “… the drop in home prices will cause the program to have its first shortfall in 2010.” What shortfall are you referring to? If you are referring to the $798 million positive credit subsidy/deficit, you are badly mistaken. Rather than repeating a prior comment, please read my reply to Rev_Ere about what that number represents. It is the lengthy reply that follows the third time that my name appears in the gray rectangles from the top of this webpage. But in brief the subsidy does not arise from losses incurred in 2010 but rather in the years that the HECMs endorsed during this fiscal year begin to terminate en masse, most likely starting after 2015.

    I do not know what you mean by the program being self sustaining. What is self sustaining? You must be very specific. Some people believe that the only HECM program uses of cash are for losses actually incurred. Nothing could be farther from the truth. Cash is also expended to acquire the HECMs assigned to FHA by note owners and to maintain those HECMs until they terminate. I have never seen that analysis. Cash is also generated on termination of the assigned HECMs.

    Some people believe that net profits are calculated by subtracting the cash paid for losses from the cash received from the MIP. While that is cash net profit, it is not the accrual basis net profit or loss the HECM program is producing. It is the accrual basis overall net profit or net loss that makes the program self sustaining over the life of the program. If you have that number, you have something none of the rest of us do. I for one believe that under the accrual method of accounting the HECM program is probably operating at a slight overall net loss. However, if home appreciation rates return to their post 1950 historical averages in the regions where HECMs are most concentrated, the HECM program could be operating at an overall net profit in a few years.

    While you are perfectly free to make any comment you choose, understand a few of us disagree with some of them. I can tell by your comments that you did not participate in the NRMLA Policy Conference in DC; you really missed something.

  • Wow,

    This trail of discussions and debates has gone everywhere. I was going to reply back to some of you but this has been a battle that got away from the initial comment made about the article from the Cynic.

    Instead of me going into my normal ten paragraphs of discussion and come backs, I am going to go back to the article and to Mr. Tiffan, whom I may say stirred the pot up real well. I feel the first part of his article needs to be thrown out the window. The second part is just as some one said in the beginning. It is good commentary, it did the industry no harm and gave us credit to what we face daily.

    I feel it showed anyone reading it, we are not and should never be compared to the sub-prime market.

    I think everyone made a very good case on their positions. James, you were their as usual with your facts and figures, good job sir.

    Mike, your points were well delivered, however the come back by James was factual feedback. I am not here to side with anyone, just to observe and read. So much has happened over the past 9 months. Changes, panic, decisions made with out warrant. We are all frustrated. If you want to get to the core of our problems, one needs to go back in time about 15 years, however that is another story for another time.

    I have seen a lot of comments in the past made by James Veale. I have not always agreed with him on his comments. However, knowing how he is a formidable opponent, before I would come back to him with my rebuttals, I would research many items he made statements on. James was right, at least 80% of the time. I am only saying this because my research proved him to be right. Please don't misunderstand me, I am not saying that the rest of you are wrong, on the contrary. however we all sometime have a tendency of expressing our opinion from our Hearts and how we feel it should be, not the way it actually is. This is because we are passionate people and care what is happening to the seniors in this country and our industry as a whole.

    I commend all of you, you have the guts to come out and speak on a topic to try and make a difference. This is why the RMDP is a great publication, it brings us together so we can learn from one another. I guess I did not make this a short commentary like I thought I was going to.

    Take care all,

    John Smaldone

  • Mr. Smaldone,

    Like you and The Cynic, I did not enjoy reading the first couple of paragraphs of this article. Mr. Tiffan did make a few valid points in the last two paragraphs. Your comments about RMD are right on point.

    I hope my percentage increases with time. I certainly am not the author or authority that some are. I appreciate your kind comments and as always enjoy reading what you have to say.

  • I’m guessing that if they expanded the PLF’s down to 5.25%, then the fixed program would eventually drop in rates down to 5.31%. The extra .25% (from 5.56%) that Seniors are picking up would have a .028% affect to the Principal Limit on a 62 year old person getting a Fixed Program. That would recover about 1/2 of what was lost in the Principal Limit reduction.rnrnIt would reduce the $798M risk because if the loans are compounding at .25% less in interest over the given period of time then the overall risk would be reduced because the only way to really have risk on a Reverse Mortgage is if the people really live a long time. If that is the case then the .25% compounded interest rate becomes even more of a factor the further you go out in time.rnrnWe won’t discuss how much banks are paying back on these Loans, but i will say that it’s increasing. The reason is that if the general GNMA falls to where forwards are below 5% (which they have recently) then the Lenders are probably making close to 4 points+ on the back when they are selling these pools. They have started to pass some of that on to us, but certainly not a proportiate share because they don’t want people to know exactly how much money they are making on these loans.rnrnI would guarantee that there would be room to move the rates down to 5.31% and you could even get some lower than that, and the Lenders would still be making out like bandits.

  • jcraigjr,rnrnThe problem is, the budgetary process is not open to debate. It is what it is. rnrnYou are also only looking at fixed rate HECMs. Bankers may not adjust as you propose. Adjustable expected interest rates could fall that low and again monthly adjusting rate HECMs become the dominant product. Note interest could take off on 6/30/2011, causing even greater problems for the program. rnrnThere are several other risks such as appreciation rates actually being less than that selected by the Administration. If that were to happen, the program would be experiencing more losses than anticipate. rnrnIn fact seniors are generally living longer than the mortality tables used in creating the PLFs indicate. rnrnYour assumptions are just that and do not address existing standards. While your assumptions may ultimately turn out to be more accurate, to get the necessary parties and actuaries to buy off on them is not a simple task. It would require substantial evidence indicating the accuracy of your assumptions over theirs. Good luck on that front.rnrnrn

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