Economic Value of FHA’s Reverse Mortgage Portfolio Grows $7.9 Billion

The financial condition of the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance (MMI )Fund gained $19 billion in Fiscal Year 2015, driven by a $7.9 billion increase in the Home Equity Conversion Mortgage (HECM) portfolio, according to FHA’s annual report to Congress released today.

For the first time since 2008, the independent actuarial analysis showed the MMI Fund’s capital ratio stands at 2.07%, exceeding the congressionally required 2% threshold FHA must maintain.

“Today’s report demonstrates that we struck the right balance in responsibly growing the Fund, reducing premiums, and doing what FHA was born to do – allowing hardworking Americans to become homeowners and spurring growth in the housing market as well as the broader economy,” said HUD Secretary Julian Castro in a written statement.

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Fiscal Year 2015 marks the third consecutive year of economic growth for the Fund, having improved 0.41% from FY 2014. The net value of the Fund is nearly $24 billion, marking the largest one-year increase since FY 2012.

As for the HECM program, its $7.9 billion increase in performance raised the HECM capital ratio from negative 1.2% in FY 2014 to positive 6.4% in FY 2015. Currently, the value of the HECM portfolio for FY 2015 stands at $6.8 billion.

“As FHA emerged from the economic crisis, discussions of the health of the MMI Fund focused on the prospects of the Forward portfolio,” states in the actuarial report. “In recent years, it has become clear that the future of health of the Fund also depends on the progress of the HECM portfolio.”

In FY 2015, FHA assisted 57,990 seniors to age in place via the HECm program, an increase of 6,374 borrowers from FY 2014.

Of this total borrower pool in 2015, 39% were single females, representing a slight decrease from 40% in the prior fiscal year; whereas single males comprised 22% of the HECM borrowers in FY 2015, up from 21% in FY 2014. Multiple borrowers were 39% of HECM borrowers, the same as FY 2014.

Borrowers’ average age has also declined, from age 77 in FY 1990 to around age 72 in FY 2015. Additionally, roughly 46% of HECM borrowers were between the ages of 62 and 69 in FY 2015, a decrease 48% in FY 2014 and 50% in FY 2013.

The positive FY 2015 Actuarial Report is great news for FHA and the HECM program because it shows that the MMI is in a position to protect itself, and taxpayers, from volatility in the marketplace, said Peter Bell, president of the National Reverse Mortgage Lenders Association (NRMLA).

“The health of the MMI fund is bolstered by improvements in the HECM portfolio attributable to changes in the actuarial forecasting of home values and interest rates, and recent policies such as changes to upfront MIP pricing and new rules requiring a financial assessment for all borrowers,” Bell said in a statement provided to RMD. “NMRLA will continue our work with FHA to improve and grow the HECM program for more seniors who want to supplement their retirement funds with proceeds from a reverse mortgage.”

Written by Jason Oliva

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  • From a one year perspective, Mr. Bell states it exactly as it is. Yet there is a historical context to this story.

    Since accounting for new HECM endorsements in the MMI Fund beginning on October 1, 2008, the cumulative losses suffered by the HECM program on those HECMs and those HECMs alone stand at a negative $684 million as of September 30, 2015. So how is it that the balance is a positive $6.778 billion? It is due to net transfer of funds into the HECM portion of the MMI Fund from forward mortgage programs in the MMI Fund of $5.776 billion and a transfer of $1.686 billion from the US Treasury.

    Some would have us think that the HECM program is exceeding the 2% reserve mandate yet without fund transfers the balance in the HECM portion of the MMI Fund would be a negative $684 million. The HECM portion of the MMI Fund has a long way to go before being a positive contributor to the MMI Fund.

  • On March 27, 2012, RMD reported in an article titled, “Is the Reverse Mortgage Financial Interview Tool Starting to Pay Off,” that “for the first time, a lender—MetLife—worked with NCOA to publish a report on how the profiles of reverse mortgage borrowers are changing—specifically getting younger…. Developed by the National Council of Aging (NCOA), the tool is a guide that counselors use….”

    RMD never followed up on a series of articles they reported on. The report can be found at:

    https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-changing-attitudes-changing-motives.pdf

    The average age of the youngest borrower has gone down over time but it has been much worse in periods before fiscal 2011 than at any time after fiscal 2010. Per the Actuarial Report for fiscal 2015, the average age of the youngest borrower has been 72 for the last five fiscal years.

    So while some have praised FIT, we now have a clear example where FIT provided false and misleading trend information that has been held by most in the industry for over four years. Like all industries, our industry has many myths created and perpetuated by the industry itself, based solely on the bias of industry participants.

    Anecdotal information like that provided by NCOA through FIT is little more than hearsay. Here I agree with The_Cynic that FIT must be completely overhauled before its product can be relied upon. In recognition of football season, here is a call we need to hear more of: “Hey, hey, ho, ho, it is way past time for FIT to go!!
    Hey, hey, ho, ho, it is now the time that FIT MUST go!!

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