FHA Report: HECM Program Performing Better Than Previously Reported

Mortgages insured by the Federal Housing Administration have performed better than expected during the fiscal year, though the improvements could be overturned if home prices sink, according to a report the agency submitted to Congress.

According to the Washington Post, FHA collected more money than it disbursed in the nine months ended June 30, for a net increase of $446 million. It concluded that FHA loans are holding up better than the audit had predicted on many fronts, in part because the agency has attracted more creditworthy borrowers and rooted out fraudulent lenders.

But the report did not update the excess cash reserves calculated in last year’s audit. Those were about $3.6 billion as of Sept. 30. That represented about 0.53 percent of all outstanding single-family home loans insured by the agency — well below the 2 percent required by law. A new audit is due later this year.

Advertisement

The report also shows that FHA’s reverse mortgage program (HECM) is performing better than previously reported.  While FHA says that insurance of reverse mortgages is down substantially this calendar year, the HECM program has operated under a -0.50 percent credit subsidy rate since October 1, 2009.  However, quarterly reports to Congress for FY 2010 Q1 and Q2 mistakenly reported this as -0.05 percent.

Credit subsidy rates are the expected net present value, per dollar of new insurance endorsements, of all cash flows from insurance operations over the life of the loan guarantees, and as-of the year of the insurance commitments.  Loans with negative credit subsidies are expected to produce receipts for the Federal budget.

Despite the report showing the HECM program being cash flow being positive, the Office of Management and Budget requested a $250 million subsidy for the FY 2011.  During the appropriations process, appropriators said $150 million would be enough to will keep the program running in 2011 at expected volume levels.

The House of Representatives provided $140 million for the HECM program, while the Senate has yet to pass a FY 2011 appropriation bill for HUD.

Join the Conversation (6)

see all

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

  • Admin is correct as to the current subsidy but since it is on two lines, it deserves repeating. The current subsidy rate is -0.50% while it has been mistakenly reported as -0.05%.rnrnWhile that information is interesting, it is merely a report on historical net cash flow from all HECMs still outstanding. The budget is much different. The budget is a projection on the overall results on a relatively small number of HECMs, the cohort projected to be endorsed during this fiscal year. It can be reasonably assumed that the net cash flow from the HECMs endorsed so far this fiscal year is much, much lower than projected. The reason is that the revenues that were projected for that cohort of HECMs are much, much lower than anticipated because of the lower than anticipated number endorsed; losses projected for this fiscal year from that cohort were de minimis and no doubt are not much different than those experienced to date.rnrnThe only report which will shed any real light on how poor the HECM budget projection was for this fiscal year is the actuarial report for the fiscal year ending September 30, 2010, which should come out before February 2011. Of course a reasonably good measure of the accuracy of the budget projection will not be available until sometime after 2017. By then, the results will be little more than points of debate since those responsible for the selection of the questionable current home appreciation rates will no longer be serving President Obama (unless he is like President Cleveland serving two nonconsecutive terms) if they are still in government at all.rnrnHopefully by 2018, home appreciation rates will be back to normal making the discussion of prior budgets look like a vain historical exercise. Time will tell. rn

  • How do they budget out the future for HECM’s at all? What do they use as estimates for terminiation periods and number of claims? Can we find out the HECM claim activity for recent years? How many claims were made, How much was paid out, etc? I’m guessing that there was much less paid out for claims than there was budgeted for it.

    • Mr. Pinter,rnrnHUD speaks about HECMs as being separated into cohorts based on the fiscal year they were endorsed. Per HUD National Office individuals who I spoke with this month, the historical projections seem to be about right if not slightly optimistic which is somewhat surprising with the poor performance in home appreciation over the last few years. It could get worse depending on home appreciation performs in the areas of HECM concentration over the next few years.rnrnUntil all HECMs within a cohort terminate, talk about performance in each cohort is based on historical terminations and projections on those which continue to be outstanding. There is a somewhat independent look at these cohorts in the annual actuarial report that HERA requires. The report for the last fiscal year was completed and reported months ago. Sometime after September 30 and probably before January 1 we should see the next report. HUD also presents a highly summarized report in its annual management report.rnrnThe cohorts are also grouped and addressed by those which are in the General Insurance Fund and those which are in the Mutual Mortgage Insurance Fund. HUD is also reasonably good about getting information broken down by cohorts which at times have been presented at NRMLA meetings and through this website. rnrnWhat is always troubling about any numbers which are based on projections is not just the model itself from which numbers are derived but even more importantly the assumptions upon which the model is designed.rnrnPart of the reason for lower proceeds for the next fiscal year is HUD has changed many model assumptions based more on historical experience than on generalized theoretical assumptions. Such changes always produce some skewing and in this case, it skews in the direction of lower proceeds. Although some in the industry are somewhat familiar with some changes, most of us are not. So there is and will be renewed interest in the actuarial report which will be forthcoming.rnrnNo doubt current internal cash flow projections for current fiscal year revenues are lower than those prepared before this fiscal year started. You are right to question losses. However, they are most relevant when reviewed by cohort and grouped into the GI Fund and the MMI Fund. Even though they are of less value in the budget argument, the results of those in the GI fund are of great interest since there are few, if any, losses from terminations within the MMI Fund to date. What would be helpful is to see the historical data plus projections for the HECMs still outstanding broken down by cohort and then compared to budget estimates.rn

    • Mr. Pinter,rnrnHERA (PL 110-289) Section 2118(b)(2) states: u201cHOME EQUITY CONVERSION MORTGAGES.u2014Section 255(i)(2)(A) of the National Housing Act (12 U.S.C. 1715zu201320(i)(2)(A)) is amended by striking u2018u2018General Insurance Fundu2019u2019 and inserting u2018u2018Mutual Mortgage Insurance Fundu2019u2019.rn rnThose loans which were endorsed while the program was in the GI Fund stay in the GI Fund while all others are in the MMI Fund. As to why it has to be that way is a matter of law, HUD accounting, subsidies, appropriations, and reserves. rnrnIn the GI Fund, the cumulative losses of one program can be offset against the net cumulative profits of another. That is not true in the MMI Fund. In the MMI Fund, each cohort of endorsed HECMs stands on its own and cannot be offset by the cumulative net profits of other cohorts of the HECM program in the MMI (or any other) Fund or the cumulative net profits of any other program in the MMI Fund.rnrnMany (if not most) of the HECMs in the GI Fund have not terminated. Some are estimating that upon termination of all HECMs in that Fund, there could be an overall slight loss. Like everyone else interested in this accounting, I am waiting to see the next actuarial and management reports. rn

  • Mr. Pinter,rnrnHERA (PL 110-289) Section 2118(b)(2) states: u201cHOME EQUITY CONVERSION MORTGAGES.u2014Section 255(i)(2)(A) of the National Housing Act (12 U.S.C. 1715zu201320(i)(2)(A)) is amended by striking u2018u2018General Insurance Fundu2019u2019 and inserting u2018u2018Mutual Mortgage Insurance Fundu2019u2019.rn rnThose loans which were endorsed while the program was in the GI Fund stay in the GI Fund while all others are in the MMI Fund. As to why it has to be that way is a matter of law, HUD accounting, subsidies, appropriations, and reserves. rnrnIn the GI Fund, the cumulative losses of one program can be offset against the net cumulative profits of another. That is not true in the MMI Fund. In the MMI Fund, each cohort of endorsed HECMs stands on its own and cannot be offset by the cumulative net profits of other cohorts of the HECM program in the MMI (or any other) Fund or the cumulative net profits of any other program in the MMI Fund.rnrnMany (if not most) of the HECMs in the GI Fund have not terminated. Some are estimating that upon termination of all HECMs in that Fund, there could be an overall slight loss. Like everyone else interested in this accounting, I am waiting to see the next actuarial and management reports. rn

string(111) "https://reversemortgagedaily.com/2010/08/20/fha-report-hecm-program-performing-better-than-previously-reported/"

Share your opinion