Reverse Mortgage Defaults Slow in New FHA Book of Business

There are half as many tax and insurance defaults for Federal Housing Administration reverse mortgages in the most recent vintage of loans when compared to past years, agency officials told industry professionals last week in New York City.

Speaking before the National Reverse Mortgage Lenders Association annual eastern regional conference, Department of Housing and Urban Development Director of Portfolio Analysis Colin Cushman reported that the default rate is falling based on the most recent HUD data.

“The 2011 book is at a default rate of 1.6% and at the same point in time for the 2009 or 2010 books they were at 3.4% and 3.0%, respectively,” Cushman said. “The fiscal year 2011 book of business default rate is roughly half that of the ’09 and ’10 books.”

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The exact reason for the decline is unknown, but Cushman said the ongoing discussion among lenders about addressing the problem could be one cause, as well as some overlays.

“We know there are probably some overlays you’re doing as lenders that are having a positive impact on the MMI fund,” said Karin Hill, director of HUD’s Office of Single Family Program Development.

Even though the default rate for newer loans is slowing, the number of defaults for the entire FHA reverse mortgage portfolio increased to 54,000 units or 9.4% in February 2012, up from 8.1% in July 2011.

The average cure rate on active default cases since July is 3% with some servicers having been more successful at curing defaults, the officials said.

“Repayment rates are relatively constant across their property value spectrums,” Cushman said. “This shows it doesn’t really matter whether the borrower has a high or low home value; the repayment success is the same.”

While the overall proportion of defaults has increased, Cushman noted that the data comparing the 2011 book of business to 2010 and 2009 may be seen as a sign of encouragement.

“We’re seeing some signs of success,” he said. “Hopefully we can attribute that to a spectrum of things. That’s the good news right now.”

Written by Elizabeth Ecker

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  • While it is great that the rate of growth in defaults is going down, to have over 9% of the entire HECM base in default is problematic.  No doubt a significant portion of the prior base was sold to Fannie Mae, all of the growth coming from more recent originations has lender guarantees associated with them.

    So are the defaults fairly evenly spread among lenders or are some lenders in worse shape than others?  If the risk is more concentrated in some lenders than others or the risk which some lenders have is disproportionate to their equity, is HUD taking those lenders to task?

    Just because the rate of defaults is going down, I hope the intensity of getting a financial assessment policy at HUD in place is not.   

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