Helped by the Federal Housing Administration’s new HECM Saver program, the agency expects the program to be cash flow positive for the first time in two years.
“Designed as a second reverse mortgage option for senior home owners to tap into their equity, the HECM Saver product has lower upfront loan closing costs and is optimal for homeowners who want to borrow a smaller amount than that which would be available with a HECM Standard loan,” said Shaun Donovan, Secretary of the Department of Housing and Urban Development during testimony before the Senate Appropriations Subcommittee on Transportation, HUD, and Related Agencies.
Using the HECM Saver, borrower have access to home equity in amounts that are between 10 and 18 percent less than would be available with the HECM Standard option. “The reduction equity take-out for Saver substantially lowers risk to the FHA insurance Fund, and thus permits the virtual elimination of the upfront premium charge,” he said.
Donovan said the President’s budget estimates that the HECM program will generate $304 million in receipts during fiscal year 2012.
Overall, an actuarial review published earlier this year showed FHA’s total capital resources increased by $1.5 billion to $33.3 billion during FY 2010. The number would’ve been higher, but after a but after a FY 2009 re-estimate for the HECM program, HUD shifted $1.7 billion in capital resources from single family to bolster the HECM program’s reserves.
“On a standalone basis, had capital resources not been shifted from the forward loan accounts to HECM accounts to cover HECM budget re-estimates, the capital ratio of single-family forward loans (96% of the portfolio) would have increased from 0.42% in FY 2009 to 0.79% in FY 2010, demonstrating significant improvement in loan quality and underlying reserves,” said Donovan.
Incorporating conservative economic forecasts, the capital ratio for the entire MMI Fund is projected by the independent actuaries to exceed the 2% statutory requirement early in 2015.
“Furthermore, we have implemented a wide range of additional policy actions that are expected to strengthen the Fund even more quickly than forecasted,” said Donovan. “While we are not yet completely out of the woods based on the evidence we’re seeing, FHA is weathering the economic storm.”