The reverse mortgage portion of the Federal Housing Administration’s Mutual Mortgage Insurance Fund (MMIF) continues to stand at a negative capital ratio on the overall government-backed portfolio, according to an annual actuarial review of the fund’s finances released late last week. However, its negative value over the past year has been almost entirely diminished, sitting at approximately -$500 million compared with the -$5.92 billion figure recorded in 2019.
Reverse mortgage industry leaders are largely encouraged by the news presented in the report, according to outreach conducted by RMD. While the value of the Home Equity Conversion Mortgage (HECM) portfolio is still negative, industry leaders are encouraged by another consecutive increase in value closing the gap between negative and positive territory, while acknowledging that work must still be done to limit the impact of the HECM portfolio on American taxpayers.
HECM program performance in 2020
The improvement in the performance of the HECM portfolio should not be understated in the conversation about the viability of the program, according to Chris Mayer, CEO of Longbridge Financial.
“It is great to see the strong improvement in the HECM MMI Fund Capital by over $5 billion, the second consecutive year with a dramatic improvement in the capital ratio for the HECM program,” Mayer told RMD. “These improvements reflect not only improved economic conditions, but also the impact of higher quality loans that have been originated since the FHA mandated financial assessment for new borrowers and put steps into place to ensure that appraisals more accurately reflect the value of homes with a new HECM reverse mortgage.”
For its part, leading reverse mortgage lender Finance of America Reverse (FAR) related that it was pleased with the performance of the HECM portfolio in this year’s report, according to Scott Norman, VP of field retail and director of government relations at FAR.
“We were extremely pleased by the sustained meaningful performance of the MMI Fund this year,” Norman told RMD. “Considering where the Fund was just two years ago it gives us confidence that the industry is on the right track.”
Also acknowledging the positive performance of the HECM portfolio is top ten lender Open Mortgage, seeing that HECM program changes instituted by FHA over the past several years has had a cumulative effect on improving the financial standing of the reverse mortgage book of business. This is according to Patty Wills, national retail sales manager for reverse mortgages at Open Mortgage.
Still, while the state of the HECM program in the MMI Fund has improved, that has not diminished the increased difficulty for needs-based borrowers that some of the industry changes have created, Wills said.
“The improvement to the MMI Fund has been substantial and is a reflection of both the general economic conditions and home appreciation, as well as the changes to the HECM program,” Wills said. “These program changes have led to a more secure MMI Fund, but these changes, even though they may have been necessary, have also created obstacles for borrowers in need.”
Impact on lenders’ 2021 plans
In terms of how the MMI Fund’s performance is expected to impact plans for 2021, some of the potential impact is a lingering mystery due to other, active elements of the economy as it relates to an impending political transition and, most importantly, the COVID-19 coronavirus pandemic.
“We do not know what, if any, action HUD will take this [coming] year,” Wills said of Open Mortgage’s 2021 plans. “As always, we will be prepared to meet any challenges that may arise. We will also continue to move forward with the program we have committed to our customers and serve them as best we can. With the current housing market, interest rate environment and over 62 retirement needs, we still see growth in the standard HECM market and for the HECM for purchase market.”
Some of the potential negative impacts for 2021 are at least slightly mitigated by the large national footprint maintained by Open Mortgage, Wills said, so wherever market growth occurs the company should be able to meet it.
In terms of 2021 planning for FAR, the MMI Report is not expected to change course at the company, Norman explained, but does have the effect of solidifying company confidence in the HECM business.
“The report will not impact FAR’s preparations for 2021, but it gives us more reasons to believe the program is on firm footing,” he said. “This only adds to our long-term view about the importance of reverse mortgages and the significance of our proprietary suite of HomeSafe reverse mortgage products in terms of ensuring long-term, positive outcomes for borrowers and experiencing more joy during their golden years.”
FAR will continue to work with representatives of both the U.S. Department of Housing and Urban Development (HUD) and the National Reverse Mortgage Lenders Association (NRMLA) to continue to strengthen its reverse mortgage offerings, Norman said.
FHA concerns continue, as lenders hope servicing issues can be addressed
During the media briefing with reporters discussing FHA’s annual report, FHA Commissioner Dana Wade expressed positivity about the reverse mortgage program in terms of its recent improvements in the MMI Fund, but still related disappointment and caution considering that the HECM portfolio is still in negative territory.
The concerns of the commissioner and of FHA at-large are understandable, but many concerns would be mitigated if the agency takes a more proactive approach to the back-end issues that exist for the program, Wills said.
“It is our hope that HUD considers the information, research and proposals that NRMLA has put forward regarding the servicing of the HECM,” she said. “There has been some research that suggests that HUD could save a substantial amount of money by making some changes on the back end servicing of the HECMs. It is also important to continue to note the significant improvement in the MMI Fund for reverse mortgages over the course of the last few years.”
That was also a perspective shared by Scott Norman, seeing the forward momentum of the industry taking place due to policy changes implemented into the reverse mortgage program.
“There is always room for improvement,” he said. “While the servicing of assigned loans remains one of the top issues currently facing our industry today, it is important to recognize and celebrate the policy changes that have been implemented by HUD over the last few years. From financial assessment to collateral risk assessment, these policy changes have benefited both the HECM program as well as the MMI Fund. As a result, new borrowers are having better long-term outcomes compared with those who pursued reverse mortgages prior to the policy changes.”
That FHA will address servicing issues is also a hope shared by Chris Mayer.
“We continue to believe that there is an opportunity for the HECM program to save taxpayers additional billions of dollars as specified in recent NRMLA proposals for improving its servicing once loans are transferred from private servicers to the FHA,” he said.