Reverse Mortgage Program Needed Now More Than Ever Says FHA Commissioner

During his testimony in front of the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, David Stevens, Assistant Secretary of Housing for the Federal Housing Administration urged members to fulfill the $250 million appropriation request for HUD’s FY 2011 budget.

After performing considerable analysis to reduce the risk to the taxpayer and maintain the viability of the reverse mortgage program, Stevens said HUD has proposed an increase in the annual mortgage insurance premium from 0.50% to 1.25% and a further reduction in the principal limit factors (PLFs) of approximately one to five percent depending on the age of the borrower for FY 2011. In addition, HUD is requesting a $250 million appropriation to offset projected losses and lessen the principal limit reduction.

“Without the budget request, we would be forced to reduce the PLFs by an additional 21% in FY2011,” said Stevens. “This would significantly reduce the amount of funds that would be available to seniors (more than 30%), which is on average a $23,000 to $27,000 impact.”

Advertisement

He stressed to the committee that any additional steep cuts to the PLF will result in serious decline in program levels as the HECM program would no longer be viable to many seniors.

“It is important to note that the need for this type of program is greater now than it’s ever been, due to increasing medical costs, declining employment/incomes, and less “savings” in various types of pension funds/retirement accounts,” said Stevens.

Forecasts suggest that future house prices will grow more slowly than in the past, and the reverse mortgage program costs are very sensitive to future house prices. As such, HUD has assembled a working group with the Department to see what other kinds of broader program changes could be made going forward to make the program more viable even under stressful economic times.

Click here to read the full testimony.

Join the Conversation (24)

see all

This is a professional community. Please use discretion when posting a comment.

  • Tim,rnrnI am afraid you are wrong. The calculation of proceeds is based on discounted cash flow principles and includes the ongoing MIP in those calculations. The same holds true for the tenure payment and servicing fee set aside calculations.rnrnIf you have never attempted to manually calculate principal limits without using the principal limit factors, it is a most interesting exercise. As a former math major, it is a very tedious exercise. Although I have rarely come to the exact same number, they are usually within “rounding errors.”

  • Timlinger,rnI am 99% sure that the increase in MIP does effect the PL to borrowers. I am aware of the cost over the loan but it does also effect the funds available.rnrnThe critic,rnI unfortunately don’t have any supporting documentation as to why they will support our subsidy request. I just can’t imagine they will completely kill this program because it benefits so many seniors. As we all know we are dealing with the government so nothing surprises me any more. If its not provided these changes will certainly kill the HECM no matter what changes the lenders pull to try to improve the product. rnrnWe will all be throwing in the towel if the PL is reduced 21% and the MIP is increased to 1.25%…which also reduces the PL! I would think these two combined would be absolutely terrible.

  • 2545,rnrnThis has been the position of the Administration since the budget was first presented. I believe this is the 1% to 5% beyond the current 10% reduction discussed several times by the Commissioner.rnrnWhy is it you believe that we WILL get the $250 million subsidy? Last year, the apparent positive credit subsidy was $798 million and the Senate was willing to give us $288 million and the House none. They both passed their own version of HR 3288 reflecting those subsidies. There was a general consensus last year that if HR 3288 was reconciled, the House version would prevail.rnrnWhy do you believe the environment is any different now? There has been no significant change in the makeup in the Congress other than the super majority change in the Senate. Per Peter Bell it is the Republicans who knocked down the appropriation last time (although with their weak position, that is difficult to “reconcile”). So how are things so different now? Why wouldn’t they agree to the prinicpal limits proposed, give us $0 subsidy and simply increase either the upfront or ongoing MIP higher than is being proposed?rnrnI think we have a real reason to be concerned about the subsidy. Last year some believe we “caved” and some are concerned that our position is far worse this year over last. Please point out why you are so optimistic. Our record on subsidies is currently very poor.

  • I don’t get it. If the program is needed now more than ever, why are they cutting the limits again and preventing millions from receiving the benefits of a program that has never run at at a deficit. The projections are absurd! No one knows when the loans will terminate or where the real estate market will be when they do.

  • The MIP increase to 1.25% doesn’t effect the PL (same funds to client). It does however impact the over all cost to the loan and ultimatley the remaining equity in the home. rnrnThe time clock is ticking for the reverse mortgage program whether the PL gets reduced or not (which it will). Interest rate increase lowers the PL and that is a sure thing. Most seniors are already upside down (to high of a mortgage) and house values aren’t going to increase much in the next 10 years+.

  • It is disappointing that there has been no clear statement by HUD as to what the total positive credit subsidy actually is. Using last year’s standard, the subsidy would appear to be well in excess of $1 billion.rnrnThe estimate is based on the 10% reduction which was required as a result of the $798 million credit subsidy projection for this fiscal year and then simply adding to it the $250 million request this coming fiscal year. The next question then becomes what does the 0.75% increase to the ongoing MIP accrual plus an additional 1% to 5% increase to the current 10% reduction equate to in additional positive credit subsidy?rnrnSo for transparency’s sake, what is the indicated positive credit subsidy before HECM program adjustments? Then what is it that OMB is saying about home appreciation for the next few years? Is the OMB home appreciation rate analysis based on a national average, a real estate market by market analysis, the general inflation rate as in the last budget, or some other basis?rnrnLet’s hope more information is soon forthcoming.

  • An additional 21%?? I thought that the 21% already included the 10% reduction from Oct of last year?rnrnI believe that we will get the 250 million but does anyone know what percent change in funds available to the borrower the increase in MIP from .5% to 1.25% is going to make?

  • Tim,rnrnI am afraid you are wrong. The calculation of proceeds is based on discounted cash flow principles and includes the ongoing MIP in those calculations. The same holds true for the tenure payment and servicing fee set aside calculations.rnrnIf you have never attempted to manually calculate principal limits without using the principal limit factors, it is a most interesting exercise. As a former math major, it is a very tedious exercise. Although I have rarely come to the exact same number, they are usually within “rounding errors.”

  • Timlinger,rnI am 99% sure that the increase in MIP does effect the PL to borrowers. I am aware of the cost over the loan but it does also effect the funds available.rnrnThe critic,rnI unfortunately don’t have any supporting documentation as to why they will support our subsidy request. I just can’t imagine they will completely kill this program because it benefits so many seniors. As we all know we are dealing with the government so nothing surprises me any more. If its not provided these changes will certainly kill the HECM no matter what changes the lenders pull to try to improve the product. rnrnWe will all be throwing in the towel if the PL is reduced 21% and the MIP is increased to 1.25%…which also reduces the PL! I would think these two combined would be absolutely terrible.

  • 2545,rnrnThis has been the position of the Administration since the budget was first presented. I believe this is the 1% to 5% beyond the current 10% reduction discussed several times by the Commissioner.rnrnWhy is it you believe that we WILL get the $250 million subsidy? Last year, the apparent positive credit subsidy was $798 million and the Senate was willing to give us $288 million and the House none. They both passed their own version of HR 3288 reflecting those subsidies. There was a general consensus last year that if HR 3288 was reconciled, the House version would prevail.rnrnWhy do you believe the environment is any different now? There has been no significant change in the makeup in the Congress other than the super majority change in the Senate. Per Peter Bell it is the Republicans who knocked down the appropriation last time (although with their weak position, that is difficult to “reconcile”). So how are things so different now? Why wouldn’t they agree to the prinicpal limits proposed, give us $0 subsidy and simply increase either the upfront or ongoing MIP higher than is being proposed?rnrnI think we have a real reason to be concerned about the subsidy. Last year some believe we “caved” and some are concerned that our position is far worse this year over last. Please point out why you are so optimistic. Our record on subsidies is currently very poor.

  • I don’t get it. If the program is needed now more than ever, why are they cutting the limits again and preventing millions from receiving the benefits of a program that has never run at at a deficit. The projections are absurd! No one knows when the loans will terminate or where the real estate market will be when they do.

  • The MIP increase to 1.25% doesn’t effect the PL (same funds to client). It does however impact the over all cost to the loan and ultimatley the remaining equity in the home. rnrnThe time clock is ticking for the reverse mortgage program whether the PL gets reduced or not (which it will). Interest rate increase lowers the PL and that is a sure thing. Most seniors are already upside down (to high of a mortgage) and house values aren’t going to increase much in the next 10 years+.

  • It is disappointing that there has been no clear statement by HUD as to what the total positive credit subsidy actually is. Using last year’s standard, the subsidy would appear to be well in excess of $1 billion.rnrnThe estimate is based on the 10% reduction which was required as a result of the $798 million credit subsidy projection for this fiscal year and then simply adding to it the $250 million request this coming fiscal year. The next question then becomes what does the 0.75% increase to the ongoing MIP accrual plus an additional 1% to 5% increase to the current 10% reduction equate to in additional positive credit subsidy?rnrnSo for transparency’s sake, what is the indicated positive credit subsidy before HECM program adjustments? Then what is it that OMB is saying about home appreciation for the next few years? Is the OMB home appreciation rate analysis based on a national average, a real estate market by market analysis, the general inflation rate as in the last budget, or some other basis?rnrnLet’s hope more information is soon forthcoming.

  • An additional 21%?? I thought that the 21% already included the 10% reduction from Oct of last year?rnrnI believe that we will get the 250 million but does anyone know what percent change in funds available to the borrower the increase in MIP from .5% to 1.25% is going to make?

  • An additional 21%?? I thought that the 21% already included the 10% reduction from Oct of last year?

    I believe that we will get the 250 million but does anyone know what percent change in funds available to the borrower the increase in MIP from .5% to 1.25% is going to make?

  • It is disappointing that there has been no clear statement by HUD as to what the total positive credit subsidy actually is. Using last year's standard, the subsidy would appear to be well in excess of $1 billion.

    The estimate is based on the 10% reduction which was required as a result of the $798 million credit subsidy projection for this fiscal year and then simply adding to it the $250 million request this coming fiscal year. The next question then becomes what does the 0.75% increase to the ongoing MIP accrual plus an additional 1% to 5% increase to the current 10% reduction equate to in additional positive credit subsidy?

    So for transparency's sake, what is the indicated positive credit subsidy before HECM program adjustments? Then what is it that OMB is saying about home appreciation for the next few years? Is the OMB home appreciation rate analysis based on a national average, a real estate market by market analysis, the general inflation rate as in the last budget, or some other basis?

    Let's hope more information is soon forthcoming.

  • The MIP increase to 1.25% doesn't effect the PL (same funds to client). It does however impact the over all cost to the loan and ultimatley the remaining equity in the home.

    The time clock is ticking for the reverse mortgage program whether the PL gets reduced or not (which it will). Interest rate increase lowers the PL and that is a sure thing. Most seniors are already upside down (to high of a mortgage) and house values aren't going to increase much in the next 10 years+.

    • Tim,

      I am afraid you are wrong. The calculation of proceeds is based on discounted cash flow principles and includes the ongoing MIP in those calculations. The same holds true for the tenure payment and servicing fee set aside calculations.

      If you have never attempted to manually calculate principal limits without using the principal limit factors, it is a most interesting exercise. As a former math major, it is a very tedious exercise. Although I have rarely come to the exact same number, they are usually within “rounding errors.”

  • I don't get it. If the program is needed now more than ever, why are they cutting the limits again and preventing millions from receiving the benefits of a program that has never run at at a deficit. The projections are absurd! No one knows when the loans will terminate or where the real estate market will be when they do.

  • 2545,

    This has been the position of the Administration since the budget was first presented. I believe this is the 1% to 5% beyond the current 10% reduction discussed several times by the Commissioner.

    Why is it you believe that we WILL get the $250 million subsidy? Last year, the apparent positive credit subsidy was $798 million and the Senate was willing to give us $288 million and the House none. They both passed their own version of HR 3288 reflecting those subsidies. There was a general consensus last year that if HR 3288 was reconciled, the House version would prevail.

    Why do you believe the environment is any different now? There has been no significant change in the makeup in the Congress other than the super majority change in the Senate. Per Peter Bell it is the Republicans who knocked down the appropriation last time (although with their weak position, that is difficult to “reconcile”). So how are things so different now? Why wouldn't they agree to the prinicpal limits proposed, give us $0 subsidy and simply increase either the upfront or ongoing MIP higher than is being proposed?

    I think we have a real reason to be concerned about the subsidy. Last year some believe we “caved” and some are concerned that our position is far worse this year over last. Please point out why you are so optimistic. Our record on subsidies is currently very poor.

  • 2545,rnrnThis has been the position of the Administration since the budget was first presented. I believe this is the 1% to 5% beyond the current 10% reduction discussed several times by the Commissioner.rnrnWhy is it you believe that we WILL get the $250 million subsidy? Last year, the apparent positive credit subsidy was $798 million and the Senate was willing to give us $288 million and the House none. They both passed their own version of HR 3288 reflecting those subsidies. There was a general consensus last year that if HR 3288 was reconciled, the House version would prevail.rnrnWhy do you believe the environment is any different now? There has been no significant change in the makeup in the Congress other than the super majority change in the Senate. Per Peter Bell it is the Republicans who knocked down the appropriation last time (although with their weak position, that is difficult to “reconcile”). So how are things so different now? Why wouldn’t they agree to the prinicpal limits proposed, give us $0 subsidy and simply increase either the upfront or ongoing MIP higher than is being proposed?rnrnI think we have a real reason to be concerned about the subsidy. Last year some believe we “caved” and some are concerned that our position is far worse this year over last. Please point out why you are so optimistic. Our record on subsidies is currently very poor.

  • Timlinger,
    I am 99% sure that the increase in MIP does effect the PL to borrowers. I am aware of the cost over the loan but it does also effect the funds available.

    The critic,
    I unfortunately don't have any supporting documentation as to why they will support our subsidy request. I just can't imagine they will completely kill this program because it benefits so many seniors. As we all know we are dealing with the government so nothing surprises me any more. If its not provided these changes will certainly kill the HECM no matter what changes the lenders pull to try to improve the product.

    We will all be throwing in the towel if the PL is reduced 21% and the MIP is increased to 1.25%…which also reduces the PL! I would think these two combined would be absolutely terrible.

  • Timlinger,rnI am 99% sure that the increase in MIP does effect the PL to borrowers. I am aware of the cost over the loan but it does also effect the funds available.rnrnThe critic,rnI unfortunately don’t have any supporting documentation as to why they will support our subsidy request. I just can’t imagine they will completely kill this program because it benefits so many seniors. As we all know we are dealing with the government so nothing surprises me any more. If its not provided these changes will certainly kill the HECM no matter what changes the lenders pull to try to improve the product. rnrnWe will all be throwing in the towel if the PL is reduced 21% and the MIP is increased to 1.25%…which also reduces the PL! I would think these two combined would be absolutely terrible.

  • Tim,rnrnI am afraid you are wrong. The calculation of proceeds is based on discounted cash flow principles and includes the ongoing MIP in those calculations. The same holds true for the tenure payment and servicing fee set aside calculations.rnrnIf you have never attempted to manually calculate principal limits without using the principal limit factors, it is a most interesting exercise. As a former math major, it is a very tedious exercise. Although I have rarely come to the exact same number, they are usually within “rounding errors.”

string(119) "https://reversemortgagedaily.com/2010/04/26/reverse-mortgage-program-needed-now-more-than-ever-says-fha-commissioner-2/"

Share your opinion