The US Department of Housing and Urban Development published the 2011 Congressional Justifications for the FY 2011 Budget which provides more information regarding the OMB’s $250 million credit subsidy request for the Federal Housing Administration’s reverse mortgage program.
According to the Mortgage and Loan Insurance Program (FHA Fund) document, the HECM program in FY 2010 is estimated to bear a subsidy rate of -0.50 percent, yielding offsetting budgetary receipts. However, the rate for fiscal year 2011 switches to +.83 percent, largely due to changes in economic assumptions.
In addition, it notes that the HECM reverse mortgage guarantee program credit subsidy rate is especially sensitive to the assumptions for future house price appreciation due to the loans’ extended average tenure and the rising outstanding balances that accrue during the life of the loans.
The decline in home values has also adversely affected the projected credit performance of HECMs and therefore will require a new discretionary appropriation of $250 million to permit the guarantee of the estimated loan volume (119,000 loans).
The document also mentions the increase in the annual MIP for the HECM program from 50 bps to 125 bps which still needs to be approved by Congress and, if implemented, will not take effect until October 1, 2010 according to an alert from the National Reverse Mortgage Lenders Association.