Because of losses that the Federal Housing Administration (FHA) estimates for the Home Equity Conversion Mortgage (HECM) program in 2019, FHA should release more loan-level data on the reverse program, as well as separate the HECM program from the forward mortgage program in the calculation of statutory minimum ratios. This is according to a blog post released by the Urban Institute on Tuesday written by Laurie Goodman and Edward Golding.
The blog post predicts four trends for FHA in 2019. The final trend addresses the reverse mortgage program, and offers two initial signs of positivity in it overall: type 1 claims that represent losses from disposing properties backing mortgages declined from $677 million to $612 million, and recoveries are increasing.
Still, FHA predicts it will lose 19 percent (approximately $14 billion) on this program in 2019, a figure which is roughly similar to the program’s losses on the MMI fund recorded last month at $13.63 billion.
The post also notes that the FHA acknowledges an appraisal bias in the HECM program, but “appraisal bias on nonpurchase mortgages has long been a feature of the mortgage market, and the FHA estimates that the appraisal bias is now under 5 percent, falling from much higher levels 10 years ago,” it says.
The post also adds that the present appraisal bias “should not add much incremental risk” to the program, given that seniors can only tap approximately half of their home equity through it. This is where the post’s first recommendation comes into play, to “encourage the FHA to release more loan-level data on the reverse program so that researchers can better understand the drivers of risk in this program,” it says. “[A program] that appears to be hemorrhaging even in an environment with 7 percent home price appreciation.”
It also recommends to, “consider separating the Home Equity Conversion Mortgage Program for the forward program in calculating the statutory minimum ratios.”
The other FHA trends observed in the post for 2019 include that the FHA is performing well thanks to a strong housing market, the overall share of borrowers using down payment assistance has risen, and that cash-out refinances have also increased.
Read all of the observed 2019 trends in the blog post at the Urban Institute.
Written by Chris Clow