Last week, the Federal Housing Administration released the results of its 2018 Report to Congress, in which it revealed that the HECM portfolio had a negative capital ratio of 18.83% and a negative economic net worth of $13.63 billion in the last fiscal year.
While not exactly stellar, the results were better than last year by about $870 million. The 2017 report revealed a HECM drain to the tune of $14.5 billion and a negative capital ratio of 19.84%.
But even though the HECM program is still operating in the red, FHA Commissioner Brian Montgomery said the agency is optimistic that things will continue to improve over time as policy changes made last year take hold.
He also said the agency eschewed instituting changes to principal limit factors and HECM mortgage insurance premiums, choosing instead to put a second appraisal mandate into effect to help shore funds.
“We fully recognize the burden we’ve placed on the industry and our network of housing counselors,” Montgomery said on a call with reporters.
But while no major changes were announced, Montgomery suggested that additional adjustments may be on the horizon, hinting at rules that would help FHA better track non-borrowing spouses and improve servicing inefficiencies on the back end.
Even though the agency has had to “more or less rewrite the script” every year, Montgomery said, program changes may be unavoidable to keep the program alive.
The reverse mortgage industry has been hit hard by new regulation in the last several years, and profitability for most has taken a hit by as much as 30% as volume plummeted.
As a result, the space has seen HECM lenders embrace a variety of strategies – merging, rebranding, diversifying and innovating to stay afloat.
While the inevitability of future policy changes isn’t exactly welcome news for an industry that can’t seem to catch its breath, reverse execs offered a measured response to FHA’s report.
Most said they recognized the need for continued change, and many reaffirmed their commitment to working with FHA and representatives from the Department of Housing and Urban Development to get the proper rules in place.
“We are supportive of FHA’s changes to improve the health of the MMI Fund and recognize that there is more work that needs to be done,” said David Peskin, president of Reverse Mortgage Funding. “RMF and other industry leaders are ready and willing to assist HUD and NRMLA in any way possible. We appreciate FHA’s continued support and commitment to the HECM program.”
Kristen Sieffert, president of Finance of America Reverse, said that possibility of future program changes highlights the need for more development of non-agency reverse mortgage products, a charge FAR has been leading with fervor this year.
“In an effort to protect the longevity of the HECM program, FHA has been forced to make changes to the product almost annually,” Sieffert said. “While this long-term process is an effort we fully support, we also made a commitment to product innovation in order to provide more options to people choosing to take action to live a better retirement.”
“Today’s actuarial report suggests that more changes to the HECM program may be coming, but it’s also first time that the industry has a full suite of non-government products available to borrowers, so there’s reason to be optimistic,” Sieffert continued. “As we look to the future, we believe that product innovation and a continuous elevation of the borrower experience will be critical to breaking down barriers that are keeping people from achieving a fulfilling retirement.”
Don Currie, president of HighTechLending, also said non-agency products are a bright spot for the industry.
“The reality is the reverse mortgage program is a necessity for many seniors. Although we’ve seen contractions in HECM guidelines, I’m very encouraged by the new proprietary programs being offered by a major Lenders like RMF and FAR,” Currie said. “These programs have good legs and I’m already seeing positive results.”
For its part, the National Reverse Mortgage Lenders Association pointed out that while the drain was “concerning,” it is still better than last year. The results of the 2017 report had the association questioning the FHA’s math.
“We are still studying FHA’s Annual Report to Congress to understand how the actuaries have modeled the projected valuation of the HECM portfolio. In the past, we’ve raised concerns that actuaries misunderstood the behavior of a HECM loan over time – including how a loan is typically serviced and the home’s value at time of disposition,” NRMLA said in a statement after the 2017 report was released.
This time, the association took a less combative approach, praising FHA for recognizing that 2017 policy changes need time to take root before the HECM’s books of business could show marked signs of improvement.
It also reinforced its commitment to working with the agency to navigate future policy adjustments:
“NRMLA will need to remain focused on addressing the issues that continue to affect the HECM impact on the insurance fund and, as an organization, work with HUD to find solutions that eliminate all concerns going forward and protect the availability of reverse mortgages as an essential option for retirement financing.”
