FHA to Reduce HECM Proceeds and Raise Premiums in October

During a call with industry leaders last week, the Department of Housing and Urban Development said it plans to raise the annual insurance premium charged to borrowers and reduce the amount of money they can receive from the Home Equity Conversion Mortgage (HECM).

Starting Oct. 4th, the principal limits for Federal Housing Administration’s reverse mortgage program will decrease between approximately 1% and 5% from where they currently stand.  The changes will have less of an impact on younger borrowers, while older borrowers will see the biggest reduction in the amount of money available.  Additionally, the agency said it will raise the annual mortgage insurance premium from 0.5% to 1.25%.

It’s the second time HUD has been forced to reduce the principal limits in the last two years.  While not as steep as the 10% haircut from last year, Vicki Bott, Deputy Assistant Secretary for HUD said the changes are necessary to ensure the program is sustainable.

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Earlier this year, the Obama Administration requested a $250 million credit subsidy for the HECM in its FY 2011 budget to offset projected losses for the program.  While an appropriation bill passed by the House of Representatives provides $140 million for the program, the Senate has yet to bring its appropriations bill to the floor.  At the moment, Senate Appropriators have included $150 million for the program in the Transportation, HUD, budget for FY 2011.

According to HUD, loans with a case number assigned prior to October 4th will still be eligible for the previous principal limits.  A mortgagee letter explaining the changes will be published in September.

In addition to these changes, HUD is expected to release a new low cost reverse mortgage product in October.

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  • Has anyone heard by whom (OMB or CBO) the budget is being rescored and when it is expected we will see a new budget score for the HECM program?

    I do not agree with the language being used about the HECM program at this point. One has to have a standard by which all reductions are compared. This is not just a year to year exercise. We lost the historical program level on Principal Limit Factors (“PLFs”) on October 1, 2009. If the subsidy is given by Congress, then PFLs will be down on October 1, 2010, between 11% and 15% from their levels as of September 30, 2009.

    Within months we will be at the next February 1. That will be the time for the release of the new budget. Between now and that date, HUD will be getting the budget information together. The question which we will be facing very soon is whether the home appreciation rates used last February 1 will be lower or higher than the one’s used in the Budget for the fiscal year ending September 30, 2012. Be prepared, things could get worse before they get better.

  • Mr. McKeon,rnrnMy words to you in the following comment were probably too generous and kind. I appeal to you to either engage in a debate on the subject or back off of your statements.rnrnThese kinds of statements are unwarranted and do much harm to our relationship with those at HUD who work so hard to make this program viable for so many seniors. HUD is not the federal government at large. It is a department of the federal government filled with people who have a job to do and try to help us help seniors.rnrnMany of the FHA employees who work on the HECM program have done so for years. I have spoken to many of them who care as much about this program and its impact on seniors as anyone in our industry.rnrnYour careless and unfeeling rant shows how little you know the real feelings of many at HUD. I am not saying you have no right to rant or vent. The problem is you directed your rant and venting at the wrong group of people. That causes unnecessary damage. rn

  • I remember when the HECM loan was so easy to describe as Congress really working to help out the senior population. I guess with so many companies looking for a bail out from the government, Congress and the OMB cannot afford to come up with the relatively small amount it costs to keep this incredibly helpful program stable and available to seniors when they need it. I have to tell seniors every day I cannot help them because of the combination of reduced home prices and reduced proceeds available to them through the HECM program. nnWish I could wave a magic wand and cause Congress to care.

  • Mr. McKeon,rnrnI respectfully acknowledge your right to express your opinion but opinion it is. It is also grossly inaccurate and little more than a rant. rnrnu201cHUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes.u201d We are not at war with HUD. You are attacking the wrong source of the subsidy issue. HUD projected a negative credit subsidy but OMB overruled it. You really need to read the GAO report on the subject from last July.rnrnHUD is acting in good faith. Let Barney Frank stand up to OMB; he was not afraid to do that when either President Bush was in the White House. Somehow his voice is no longer heard because there is a Democrat sitting in the White House. rnrnYour attacks against HUD are worthless. You obviously have not read any of the public statements of NRMLA, HUD, CBO, GAO, or OMB. You really need to read and keep on top of what is actually going on. You might also try attending the NRMLA Policy Conference held in June each year.rnrnPlease read page 31 (page number is in lower left hand side of the page) of the GAO report at http://www.gao.gov/new.items/d09836.pdf. Then come back and we will debate whether it is OMB or HUD which is taking this position. My bet is on OMB.rn

  • Mr. Pinter,

    It is not ridiculous in the least, i.e., if the estimates of OMB are correct. You are mistaking a subsidy for a current cash infusion which it is not. Its correct name in the budget is a “positive credit subsidy,” not just a subsidy. When it comes to the budget, subsidies are about the same as “HECM set asides.” They are bookkeeping entries but they are used to guide Congress as to whether the budget is in balance or not.

    Like any good business, management must estimate how much income or loss next year’s sales will produce. HUD says it will be positive; OMB says it will be negative. The actual results will not be know for over a decade. The American people selected the team in the White House and that team has decided OMB wins.

    The problem is we have no idea why they rejected the estimates that HUD gathered. Does OMB actually believe they understand trends in home appreciation rates more than those who are considered experts in the field? HUD did its homework and did it right. It seems OMB can overrule any information that HUD provides, whether it is considered rational, reasonable, and appropriate or not. Remember it is the White House OMB.

  • Jim CSA,

    Like you I am also a CSA.

    If OMB was right in its home appreciation estimate, FHA should still just about break even. In other words, the reason why the proceeds were lowered by 10% was to decrease the losses so that the losses would match the revenues on a discounted cashflow basis.

    But the real question is why did OMB use such a low home appreciation rate? We will not know whether OMB was right or not until long after I am retired.

  • Hey John,rnrnWith over 20 years of history in this program, I am not nearly as negative about the federal government generally as about the OMB and those currently influencing its decisions when it comes to the HECM program. There was a recent shake out at OMB with a change in its leadership. I hope that will have a positive impact on how OMB treats the HECM program.

  • According to “An Actuarial Analysis of FHA Home Equity Conversion Mortgage Loans In The Mutual Mortgage Insurance Fund Fiscal Year 2009”,rnissued October 12,2009 by IBM Global Business Services rnThe insurance funds for the HECM program are sufficient to cover the worst scenarios possible without the 10% decrease in principal limit factors in 2009. HUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes. HUD should review its original mission statement in regard to the HECM program and act in good faith for the benefit of the senior homeowner.rnIt appears that HUD’s hidden agenda is to make the HECM so unattractive that seniors look elsewhere for needed funds.rnBarney Frank said that teh HECM program is one of the few money makers for the US government, aside from tax collections. What is HUD’s response?rnWhat is HUD’s justification for the latest increases – other than the sky may fall? HUD uses fictitious claims of seniors abandoning mortgages the same way that happened with the subprime debacle. The study does not agree with that position. HUD should be forced to explain its justification that jives with other economic forecasts and blended in with the insurance funds they now have to cover any losses to come up with realistic principal factors and PMI requirements.rnHUD also needs an independent audit by the GAO to provide actual loss data for the HECM program to ensure that these insurance funds are not being diverted to other HUD programs that may otherwise may be failing.rnOwen McKeon

  • FHA earns its funds from the Mortgage insurance premiums. As a result of last years 10% drop FHA lost 38% of its revenue because the industry was down 38%. These current measures will further reduce FHA’s earnings and hurt the program and Seniors. What has been said is true “Washington does not know what they are doing, and does not care.” They should be doing all they can to improve the program and increase revenues instead of hurting themselves and Seniors. Vote and pay attention to who you vote for. We need a serious change in Washington.

  • This is ridiculous, the program has still never needed any subsidy, it has only seemed to based on projections. The truth is that the claim activity until now has been minimal and all of the projections are based on the reductions in the real estate market. No one knows when any RM loan will terminate. Until the program actually costs more than it brings in, it should be left alone.

  • I agree with Jim Veale 100% on everything he has said. If I did not know better I would say this is a move on the part of our Federal Government to continually hurt the elder senior where it hurts the most! rnrnEventually we may see seniors over 735 not in the ball game any more, as far as being able to get a Reverse Mortgage.rnrnJim is right, things can get worse before they get better. I would go one step further and say, if I was a betting man, I would give you two to one odds it is going to get worse!!!rnrnGood day,rnrnJohn A. Smaldonern

  • Has anyone heard by whom (OMB or CBO) the budget is being rescored and when it is expected we will see a new budget score for the HECM program?

    I do not agree with the language being used about the HECM program at this point. One has to have a standard by which all reductions are compared. This is not just a year to year exercise. We lost the historical program level on Principal Limit Factors (“PLFs”) on October 1, 2009. If the subsidy is given by Congress, then PFLs will be down on October 1, 2010, between 11% and 15% from their levels as of September 30, 2009.

    Within months we will be at the next February 1. That will be the time for the release of the new budget. Between now and that date, HUD will be getting the budget information together. The question which we will be facing very soon is whether the home appreciation rates used last February 1 will be lower or higher than the one’s used in the Budget for the fiscal year ending September 30, 2012. Be prepared, things could get worse before they get better.

  • Mr. McKeon,rnrnMy words to you in the following comment were probably too generous and kind. I appeal to you to either engage in a debate on the subject or back off of your statements.rnrnThese kinds of statements are unwarranted and do much harm to our relationship with those at HUD who work so hard to make this program viable for so many seniors. HUD is not the federal government at large. It is a department of the federal government filled with people who have a job to do and try to help us help seniors.rnrnMany of the FHA employees who work on the HECM program have done so for years. I have spoken to many of them who care as much about this program and its impact on seniors as anyone in our industry.rnrnYour careless and unfeeling rant shows how little you know the real feelings of many at HUD. I am not saying you have no right to rant or vent. The problem is you directed your rant and venting at the wrong group of people. That causes unnecessary damage. rn

  • I remember when the HECM loan was so easy to describe as Congress really working to help out the senior population. I guess with so many companies looking for a bail out from the government, Congress and the OMB cannot afford to come up with the relatively small amount it costs to keep this incredibly helpful program stable and available to seniors when they need it. I have to tell seniors every day I cannot help them because of the combination of reduced home prices and reduced proceeds available to them through the HECM program. nnWish I could wave a magic wand and cause Congress to care.

  • Mr. McKeon,rnrnI respectfully acknowledge your right to express your opinion but opinion it is. It is also grossly inaccurate and little more than a rant. rnrnu201cHUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes.u201d We are not at war with HUD. You are attacking the wrong source of the subsidy issue. HUD projected a negative credit subsidy but OMB overruled it. You really need to read the GAO report on the subject from last July.rnrnHUD is acting in good faith. Let Barney Frank stand up to OMB; he was not afraid to do that when either President Bush was in the White House. Somehow his voice is no longer heard because there is a Democrat sitting in the White House. rnrnYour attacks against HUD are worthless. You obviously have not read any of the public statements of NRMLA, HUD, CBO, GAO, or OMB. You really need to read and keep on top of what is actually going on. You might also try attending the NRMLA Policy Conference held in June each year.rnrnPlease read page 31 (page number is in lower left hand side of the page) of the GAO report at http://www.gao.gov/new.items/d09836.pdf. Then come back and we will debate whether it is OMB or HUD which is taking this position. My bet is on OMB.rn

  • Mr. Pinter,

    It is not ridiculous in the least, i.e., if the estimates of OMB are correct. You are mistaking a subsidy for a current cash infusion which it is not. Its correct name in the budget is a “positive credit subsidy,” not just a subsidy. When it comes to the budget, subsidies are about the same as “HECM set asides.” They are bookkeeping entries but they are used to guide Congress as to whether the budget is in balance or not.

    Like any good business, management must estimate how much income or loss next year’s sales will produce. HUD says it will be positive; OMB says it will be negative. The actual results will not be know for over a decade. The American people selected the team in the White House and that team has decided OMB wins.

    The problem is we have no idea why they rejected the estimates that HUD gathered. Does OMB actually believe they understand trends in home appreciation rates more than those who are considered experts in the field? HUD did its homework and did it right. It seems OMB can overrule any information that HUD provides, whether it is considered rational, reasonable, and appropriate or not. Remember it is the White House OMB.

  • Jim CSA,

    Like you I am also a CSA.

    If OMB was right in its home appreciation estimate, FHA should still just about break even. In other words, the reason why the proceeds were lowered by 10% was to decrease the losses so that the losses would match the revenues on a discounted cashflow basis.

    But the real question is why did OMB use such a low home appreciation rate? We will not know whether OMB was right or not until long after I am retired.

  • Hey John,rnrnWith over 20 years of history in this program, I am not nearly as negative about the federal government generally as about the OMB and those currently influencing its decisions when it comes to the HECM program. There was a recent shake out at OMB with a change in its leadership. I hope that will have a positive impact on how OMB treats the HECM program.

  • According to “An Actuarial Analysis of FHA Home Equity Conversion Mortgage Loans In The Mutual Mortgage Insurance Fund Fiscal Year 2009”,rnissued October 12,2009 by IBM Global Business Services rnThe insurance funds for the HECM program are sufficient to cover the worst scenarios possible without the 10% decrease in principal limit factors in 2009. HUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes. HUD should review its original mission statement in regard to the HECM program and act in good faith for the benefit of the senior homeowner.rnIt appears that HUD’s hidden agenda is to make the HECM so unattractive that seniors look elsewhere for needed funds.rnBarney Frank said that teh HECM program is one of the few money makers for the US government, aside from tax collections. What is HUD’s response?rnWhat is HUD’s justification for the latest increases – other than the sky may fall? HUD uses fictitious claims of seniors abandoning mortgages the same way that happened with the subprime debacle. The study does not agree with that position. HUD should be forced to explain its justification that jives with other economic forecasts and blended in with the insurance funds they now have to cover any losses to come up with realistic principal factors and PMI requirements.rnHUD also needs an independent audit by the GAO to provide actual loss data for the HECM program to ensure that these insurance funds are not being diverted to other HUD programs that may otherwise may be failing.rnOwen McKeon

  • FHA earns its funds from the Mortgage insurance premiums. As a result of last years 10% drop FHA lost 38% of its revenue because the industry was down 38%. These current measures will further reduce FHA’s earnings and hurt the program and Seniors. What has been said is true “Washington does not know what they are doing, and does not care.” They should be doing all they can to improve the program and increase revenues instead of hurting themselves and Seniors. Vote and pay attention to who you vote for. We need a serious change in Washington.

  • This is ridiculous, the program has still never needed any subsidy, it has only seemed to based on projections. The truth is that the claim activity until now has been minimal and all of the projections are based on the reductions in the real estate market. No one knows when any RM loan will terminate. Until the program actually costs more than it brings in, it should be left alone.

  • I agree with Jim Veale 100% on everything he has said. If I did not know better I would say this is a move on the part of our Federal Government to continually hurt the elder senior where it hurts the most! rnrnEventually we may see seniors over 735 not in the ball game any more, as far as being able to get a Reverse Mortgage.rnrnJim is right, things can get worse before they get better. I would go one step further and say, if I was a betting man, I would give you two to one odds it is going to get worse!!!rnrnGood day,rnrnJohn A. Smaldonern

  • Has anyone heard by whom (OMB or CBO) the budget is being rescored and when it is expected we will see a new budget score for the HECM program?

    I do not agree with the language being used about the HECM program at this point. One has to have a standard by which all reductions are compared. This is not just a year to year exercise. We lost the historical program level on Principal Limit Factors (“PLFs”) on October 1, 2009. If the subsidy is given by Congress, then PFLs will be down on October 1, 2010, between 11% and 15% from their levels as of September 30, 2009.

    Within months we will be at the next February 1. That will be the time for the release of the new budget. Between now and that date, HUD will be getting the budget information together. The question which we will be facing very soon is whether the home appreciation rates used last February 1 will be lower or higher than the one’s used in the Budget for the fiscal year ending September 30, 2012. Be prepared, things could get worse before they get better.

  • Has anyone heard by whom (OMB or CBO) and when it is expected we will see a new budget score for the HECM program? rnrnI do not agree with the language being used about the HECM program at this point. One has to have a standard by which all reductions are compared. This is not just a year to year exercise. We lost the historical program level on Principal Limit Factors (“PLFs”) on October 1, 2009. If the subsidy is given by Congress, then PFLs will be down on October 1, 2010, between 11% and 15% from their levels as of September 30, 2009.rnrnWithin months we will be at the next February 1. That will be the time for the release of the new budget. Between now and that date, HUD will be getting the budget information together. The question will be facing very soon is whether the home appreciation rates used last February 1 will be lower or higher than the one’s used in the Budget for the fiscal year ending September 30, 2012. Be prepared, things could get worse before they get better.

  • I agree with Jim Veale 100% on everything he has said. If I did not know better I would say this is a move on the part of our Federal Government to continually hurt the elder senior where it hurts the most! rnrnEventually we may see seniors over 735 not in the ball game any more, as far as being able to get a Reverse Mortgage.rnrnJim is right, things can get worse before they get better. I would go one step further and say, if I was a betting man, I would give you two to one odds it is going to get worse!!!rnrnGood day,rnrnJohn A. Smaldonern

    • Hey John,rnrnWith over 20 years of history in this program, I am not nearly as negative about the federal government generally as about the OMB and those currently influencing its decisions when it comes to the HECM program. There was a recent shake out at OMB with a change in its leadership. I hope that will have a positive impact on how OMB treats the HECM program.

  • This is ridiculous, the program has still never needed any subsidy, it has only seemed to based on projections. The truth is that the claim activity until now has been minimal and all of the projections are based on the reductions in the real estate market. No one knows when any RM loan will terminate. Until the program actually costs more than it brings in, it should be left alone.

    • Mr. Pinter,rnrnIt is not ridiculous in the least, i.e., if the estimates of OMB are correct. You are mistaking a subsidy for a current cash infusion but it is not not. Its correct name in the budget is a “positive credit subsidy,” not just a subsidy. When it comes to the budget, subsidies are about the same as “HECM set asides.” They are bookkeeping entries but they are used to guide Congress as to whether the budget is in balance or not. rnrnLike any good business, management must estimate how much income or loss next year’s sales will produce. HUD says it will be positive; OMB says it will be negative. The American people selected the team in the White House and that team has decided OMB wins.rnrnThe problem is we have no idea why they rejected the estimates that HUD gathered. Does OMB actually believe they understand trends in home appreciation rates more than those who are considered experts in the field? HUD did its homework and did it right. It seems OMB can overrule any information that HUD provides, whether it is concerned rational, reasonable, and appropriate or not. Remember it is the White House OMB.

  • FHA earns its funds from the Mortgage insurance premiums. As a result of last years 10% drop FHA lost 38% of its revenue because the industry was down 38%. These current measures will further reduce FHA’s earnings and hurt the program and Seniors. What has been said is true “Washington does not know what they are doing, and does not care.” They should be doing all they can to improve the program and increase revenues instead of hurting themselves and Seniors. Vote and pay attention to who you vote for. We need a serious change in Washington.

    • Jim CSA,rnrnLike you I am also a CSA.rnrnIf OMB was right in its home appreciation estimate, FHA will save far more millions in losses than it lost in revenues. But the real question is why did OMB use such a low home appreciation rate? We will not know whether OMB was right or not until long after I am retired. rnrn

  • According to “An Actuarial Analysis of FHA Home Equity Conversion Mortgage Loans In The Mutual Mortgage Insurance Fund Fiscal Year 2009”,rnissued October 12,2009 by IBM Global Business Services rnThe insurance funds for the HECM program are sufficient to cover the worst scenarios possible without the 10% decrease in principal limit factors in 2009. HUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes. HUD should review its original mission statement in regard to the HECM program and act in good faith for the benefit of the senior homeowner.rnIt appears that HUD’s hidden agenda is to make the HECM so unattractive that seniors look elsewhere for needed funds.rnBarney Frank said that teh HECM program is one of the few money makers for the US government, aside from tax collections. What is HUD’s response?rnWhat is HUD’s justification for the latest increases – other than the sky may fall? HUD uses fictitious claims of seniors abandoning mortgages the same way that happened with the subprime debacle. The study does not agree with that position. HUD should be forced to explain its justification that jives with other economic forecasts and blended in with the insurance funds they now have to cover any losses to come up with realistic principal factors and PMI requirements.rnHUD also needs an independent audit by the GAO to provide actual loss data for the HECM program to ensure that these insurance funds are not being diverted to other HUD programs that may otherwise may be failing.rnOwen McKeon

    • Mr. McKeon,rnrnMy words to you in the following comment were probably too generous and kind. I appeal to you to either engage in a debate on the subject or back off of your statements.rnrnThese kinds of statements are unwarranted and do much harm to our relationship with those at HUD who work so hard to make this program viable for so many seniors. HUD is not the federal government at large. It is a department of the federal government filled with people who have a job to do and try to help us help seniors.rnrnMany of the FHA employees who work on the HECM program have done so for years. I have spoken to many of them who care as much about this program and its impact on seniors as anyone in our industry.rnrnYour careless and unfeeling rant shows how little you know the real feelings of many at HUD. I am not saying you have no right to rant or vent. The problem is you directed your rant and venting at the wrong group of people. That causes unnecessary damage. rn

  • Mr. McKeon,rnrnI respectfully acknowledge your right to express your opinion but opinion it is. It is also grossly inaccurate and little more than a rant. rnrnu201cHUD is catering to the financial markets and depriving senior homeowners much needed cash to live out the rest of their lives in their homes.u201d We are not at war with HUD. You are attacking the wrong source of the subsidy issue. HUD projected a negative credit subsidy but OMB overruled it. You really need to read the GAO report on the subject from last July.rnrnHUD is acting in good faith. Let Barney Frank stand up to OMB; he was not afraid to do that when either President Bush was in the White House. Somehow his voice is no longer heard because there is a Democrat sitting in the White House. rnrnYour attacks against HUD are worthless. You obviously have not read any of the public statements of NRMLA, HUD, CBO, GAO, or OMB. You really need to read and keep on top of what is actually going on. You might also try attending the NRMLA Policy Conference held in June each year.rnrnPlease read page 31 (page number is in lower left hand side of the page) of the GAO report at http://www.gao.gov/new.items/d09836.pdf. Then come back and we will debate whether it is OMB or HUD which is taking this position. My bet is on OMB.rn

  • I remember when the HECM loan was so easy to describe as Congress really working to help out the senior population. I guess with so many companies looking for a bail out from the government, Congress and the OMB cannot afford to come up with the relatively small amount it costs to keep this incredibly helpful program stable and available to seniors when they need it. I have to tell seniors every day I cannot help them because of the combination of reduced home prices and reduced proceeds available to them through the HECM program. nnWish I could wave a magic wand and cause Congress to care.

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