Chart of the Day: Value of the HECM Portfolio? $5.8 Billion in 2017

The latest actuarial report of the Federal Housing Administration’s reverse mortgage program shows estimates of the overall economic value of the HECM portfolio will fall to negative $503 million in fiscal year 2010 but increase to $5.8 billion in 2017.

According to the report, the increase in value is most significant between FY 2010 and FY 2011 − where the economic value of the individual books of business is estimated to increase from negative $772 million for the FY 2010 book to positive $538 million for the FY 2011 book.  The increase is due to various reasons, including higher premium rates, the introduction of the HECM Saver, and the forecasted house price recovery.

Chart: Value of HECM Portfolio2

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Value of HECM Portfolio2

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    • REVGUYJIM,
      Not being an actuary, it is easy for me to question the validity of the chart.
      The chart is based in part on the actuary report dated October 14, 2010. The actuary report, however, does not show the same number of HECMs endorsed as the report issued by HUD to Congress dated November 15, 2010. The report from the actuaries shows the number of HECMs endorsed last fiscal year as 80,369 while HUD shows 78,757. HUD projects there will be only 75,000 HECMs endorsed this fiscal year but the actuaries project 85,217.
      Since the endorsement information used in the actuary’s report for last year is 2% higher than actual endorsements and the projected endorsements for this year in the actuary’s report is 13.6% higher than the numbers projected by HUD, one has to wonder about the value of the projections reflected in the chart since the actuaries based the information on the endorsement numbers contained in their report. Of course the projected endorsements by the actuaries look low for this fiscal year when compared to the projections made by Reverse Market Insight.
      Nonetheless let us look at the chart. It seems as if it is a projection on the value of the HECMs held in the Mutual Mortgage Insurance Fund and only that fund as of the last day of the indicated fiscal year for each fiscal year beginning with the fiscal year 2010 and going through the fiscal year 2017. In each case the fiscal year begins October 1 and ends September 30. For example the fiscal year 2017 ends on September 30, 2017.
      The value of the “New HECM Book” is the projected total discounted cash flow to HUD from the HECMs endorsed as of the last day of the indicated fiscal year. For example, the actuaries estimate that as of 9/30/2010, HUD is on the hook for about $772 million for the HECMs endorsed during the fiscal year ended 9/30/2010. The actuaries also project that the HECMs for this fiscal year will produce total net revenues of $538 million on a discounted cash flow basis as of September 30, 2011. Of course we have already questioned the endorsement numbers upon which the projections are based.
      The title “Overall HECM Economic Value” is misleading and wrong. None of the HECMs endorsed before October 1, 2008 are included in this group. Again since the number endorsed for last year is wrong, this information again is questionable at best. To get to the value used as the ending value for the combined values of the HECMs still outstanding as of September 30, 2010 and endorsed in fiscal 2009 and 2010, HUD took $1.75 billion out of the Single Family Capital Fund and transferred it to the HECM portion of the Mutual Mortgage Insurance Fund during the last fiscal year; otherwise, the value to HUD would be over $2.2 billion negative.
      So where are the outcries that these numbers are bogus? Last year, even industry leaders were caught up in these claims during the budget process. This is one place where both Mr. Peter Bell and Mr. Joe Kelly brought reason and understanding; I extend my appreciation to both of them for the help they brought during those turbulent days.

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