Premiums Increase for FHA Forward Loans, No Change for Reverse Mortgages

The Department of Housing and Urban Development today announced several changes to its programs that will be made in Fiscal Year 2013 in an effort to ensure the health of HUD’s mutual mortgage insurance fund and the overall health of its lending programs. Yet the Home Equity Conversion Mortgage (HECM) program saw no change.

The Federal Housing Administration’s reverse mortgage program has experienced recent improvement, Housing Secretary Shaun Donovan said during a press call held to discuss the Obama Administration’s budget proposal for fiscal year 2013.

“We have seen improvement. There’s no question,” Donovan said. “There is a range of reasons for that. Partly, improvements in modeling and partly in the outlook in the Moody’s forecast for long term housing prices.”

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In 2010, following requests for a $798 million subsidy for FY 2010 and a $250 million request for FY 2011, FHA was forced to raise reverse mortgage insurance premiums from .5% to 1.25%, lower principal limits, and introduce the HECM Saver product as a combined effort to to ensure the overall health of the HECM program. As a result, the president’s budget released today shows the subsidy rate for the HECM program continues to improve, with a projected negative subsidy rate of .92% in 2013.

Initial response from the reverse mortgage industry is positive, touting a strong outlook for the coming fiscal year.

“The news regarding HECM is good,” wrote National Reverse Mortgage Lenders Association President and CEO Peter Bell in a letter to members following the budget announcement and discussion. “‘Negative credit subsidy’…means that the program is projected to generate enough revenue to cover its costs, thus no subsidy will be required and therefore there is no need to have Congress appropriate funds for the program for next year.”

Other FHA programs will experience changes, including premium increases for forward single-family mortgages as well as multifamily loans. Single family loans will experience a .1% premium with those greater than $625,500 seeing a .25% uptick. Multifamily loans will see an increase of 5 to 20 basis points, depending on the program.

The HECM program, having gone through many significant changes in recent years, is not likely to be on the list of additional premium increases to be announced later this week, Donovan said and a HUD spokeswoman later confirmed to RMD.

Written by Elizabeth Ecker

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  • “’We have seen improvement. There’s no question,’ Donovan said. ‘There is a range of reasons for that. Partly, improvements in modeling and partly in the outlook in the Moody’s forecast for long term housing prices.’” 
    Notice the very first reason the Secretary gives for improvement in the numbers they are seeing.  It is in manipulating HUD modeling.  Now these may be real improvements to their modeling techniques or something else again.  What was also revealing today is that nationwide, foreclosures are going up not down which may not significantly harm “the Moody’s forecast for long term housing prices” but do so in the short run.

  • What does the Secretary mean when he says:  “We have seen improvement. There’s no question,” Donovan said. “There is a range of reasons for that. Partly, improvements in modeling and partly in the outlook in the Moody’s forecast for long term housing prices.”
    The first reason is gives is changes to their modeling.  Does this indicate that they are loosing their assumptions, have corrected prior flaws which means that prior increases to MIP may have been inappropriate or what?  Is this some kind of manipulation of the modeling?  The first reason is rather questionably imprecise.

    As to long term housing prices, the announced increase in new foreclosures this morning was not good news.  While it may be of marginal importance long term, it could throw cold water on increases in the short term.  

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