The $7.9 billion climb in the economic value of the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage portfolio for Fiscal Year 2015 gave the reverse mortgage industry much to relish at this year’s annual gathering in San Francisco this week.
Overall, the FHA’s Mutual Mortgage Insurance Fund grew $19 billion, effectively surpassing its mandated 2% capital reserve ratio for the first time since 2008. This growth, which was powered by the substantial gains realized in the HECM portfolio, gave the reverse space added confidence for all of the program changes that have transpired in the past year alone.
The release of FHA’s annual Actuarial Report was well-timed with the annual National Reverse Mortgage Lenders Association (NRMLA) conference. The “good news” of the financial footing for the HECM program was met by roaring applause at nearly every session that mentioned it, and for good reason, too, as the $6.8 billion value of the HECM portfolio in FY 2015 has reinforced FHA’s trust in the reverse mortgage product and the changes it has made along the way to make the HECM a safer loan for borrowers, lenders, and the agency itself.
“Today, we’re above the 2% capital ratio, which according to the actuarial report, FHA is sufficiently capitalized under the congressional mandate,” said Kathleen Zadareky, deputy assistant secretary for single family housing at the Department of Housing and Urban Development, during NRMLA’s keynote session Monday afternoon. “We reached this goal sooner than expected and large gains in the HECM fund are part of that.”
Climbing above the 2% capital reserve ratio, while remarkable feat for FHA and a confidence booster for the reverse industry, should not be taken for granted, Zadareky added, especially when considering the volatility of the HECM program as it pertains to the MMI Fund.
Small changes in interest rates and home price appreciation, she said, all significantly affect the outcome of the modeling, which is calculated by the actuaries who devise the annual report on the economic value of the MMI Fund.
“We will continue to look at what things we should do, and can do, to manage that volatility,” Zadareky said. “What this performance shows is that we’re moving in the right direction. We can never afford to be complacent about the Fund, but we can afford to appreciate how far we’ve come.”
This year alone, the HECM program has undergone three structural updates, including the Financial Assessment, updates to the non-borrowing spouse policy, as well as servicing and loss mitigation policies—all key programmatic changes HUD deemed necessary to make the HECM product more sustainable for borrowers, and as a result, reduce risk of losses to the MMI Fund.
“It’s critical we keep the HECM program on good, solid financial footing and that it [HECM] is used as it’s intended, and that’s where the Financial Assessment and so many of the other changes we’ve made come into play,” Zadareky said.
Harkening back to the poem “The Mighty Task is Done” by Joseph Strauss, chief engineer of the Golden Gate Bridge, Zadareky likened the feat of constructing the monumental bridge to that of the reverse mortgage industry in wake of program changes.
“As participants in the HECM program, the mighty task that we’ve all accepted is to make a difference in the lives of seniors who rely on reverse mortgages as their gateway to retirement security,” she said.
Written by Jason Oliva