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Reverse Mortgage Definitions

 

Conditional Prepayment Rate (CPR)

CPR is the annualized equivalent of SMM, where CPR = 1- [(1-SMM)^12].

 

Crossover Loss

Crossover losses are losses that occur when a reverse mortgage loan balance exceeds the property value at the time the loan pays off.

 

Cutoff Date

The "as of" date for a loan or pool of loans. Cutoff Date is usually expressed as the last day or the first day of the month (i.e. as of month end, or as of beginning of month). In an electronic loan file or "tape," each field will show the value for each loan as of the cutoff date. For example, a loan that shows an unpaid balance of $100,000 in a loan tape with a cutoff date of 5/1/2016 means that the loan has that balance at the beginning of May 2016.

 

Expected Rate

The Expected Rate is the interest rate used to calculate the benefit to the borrower. For adjustable rate HECMs, the Expected Rate is equal to the ten-year benchmark corresponding to the base index, as designated by FHA, plus the net margin. For fixed rate loans, the expected rate is the fixed rate itself.

 

Forward Mortgage

A forward mortgage is any mortgage where the borrower has a monthly or other periodic mortgage payment obligation.

 

Forward Settlement Date

A trade that settles after the next record date. For example, at May 15th, an HMBS certificate traded with a June 12th settlement is a forward settlement; the buyer will not receive its first payment until July 20th because the first record date upon which the buyer will be holder of record will be June 30th.

 

General Insurance Fund (GI)

The GI is FHA's second largest fund behind the MMI Fund. Prior to FY 2009, HECMs were insured by the GI fund. The FHA operates its programs through five insurance funds supported primarily by premium, fee and interest income, Congressional appropriations, and borrowing from the U.S. Treasury. The other funds are the Mutual Mortgage Insurance (MMI) fund, the Special Risk Insurance (SRI) fund, the Cooperative Management Housing Insurance (CMHI) fund, and the Hope for Homeowners (H4H) fund.

 

HECM Mortgage-Backed Security (HMBS)

An HMBS is a Ginnie Mae insured certificate backed by a pool of HECMs.

 

Home Equity Conversion Mortgage (HECM)

A HECM is an FHA-insured reverse mortgage.

 

Home Price Appreciation (HPA)

HPA is the amount of price appreciation or depreciation, typically expressed as an annual percentage, which occurs for a given single-family property, or in a given pool of single-family properties.

 

Loan Liability Guaranty (LLG)

The LLG is the net present value of cash outflows (claim payments, premium refunds, property maintenance, and selling costs) and cash inflows (premium receipts, proceeds from asset sales, and P&I from assigned mortgages) on FHA’s mortgage loan portfolio.

 

Loan To Value (LTV)

LTV is a percentage equal to the outstanding amount of the loan divided by the value of the underlying property.

 

Maturity Event

A Maturity Event is when one of the following occur:
a) the property is sold or transferred
b) the last remaining borrower dies
c) the property ceases to be the borrower's principal residence
d) the borrower fails to occupy the property for more than 12 consecutive months
e) the borrower defaults under the terms of the mortgage or note.

 

Maximum Claim Amount (MCA)

The MCA is a proxy for home value calculated by HUD. It is equal to the lesser of i) the value of the property upon which the Principal Limit is based, and ii) the FHA limit. The FHA limit is being raised to $636,150 for all 50 states, Guam, and the Virgin Islands, effective January 1, 2017 through December 31, 2017. For the lower 48 states, the previous MCA was $625,500.

 

Mortgage Insurance Premium (MIP)

The MIP is the borrower-paid mortgage insurance payment. The upfront MIP is 0.5% of the Maximum Claim Amount if 60% or less of the Principal Limit is drawn in the first year and 2.5% if more than 60% of the Principal Limit is drawn in the first year. The ongoing Annual MIP is 1.25% of the loan balance.


For HECMs originated between October 2010 and October 2013, the upfront MIP was 2.0% for the HECM Standard and 0.01% for the HECM Saver. For HECMs originated prior to October 2010, the upfront MIP was 2.0%.


The Annual MIP was 0.5% until October 1, 2010.

 

Mutual Mortgage Insurance Fund (MMI)

The MMI is FHA's largest fund, comprising approximately 87% of FHA's insurance-in-force, or $1.19 trillion at 2016 fiscal year end. HECMs have been insured by this fund since FY 2009. The FHA operates its programs through five insurance funds supported primarily by premium, fee and interest income, Congressional appropriations, and borrowing from the U.S. Treasury. The other funds are the General Insurance (GI) fund, the Special Risk Insurance (SRI) fund, the Cooperative Management Housing Insurance (CMHI) fund, and the Hope for Homeowners (H4H) fund.

 

Negative (Positive) Subsidy

A negative (positive) subsidy is a surplus (deficit) created by subtracting crossover losses occurred from the mortgage insurance premium collected. Negative and positive subsidies are terms used by HUD to describe their insurance premiums’ impact on the federal budget.

 

Net Principal Limit

The Principal Limit, less the amount that has been borrowed.

 

Payment Date

The date upon which the holder of record receives payment. Also referred to as the Bond Payment Date, Certificate Payment Date, and/or Distribution Date. For GNMA IIs, including HMBS, the Payment Date is the 20th of the month or the next succeeding business day.

 

Prepayment

A prepayment occurs when the loan balance is paid in full.

 

Prepayment Curve (PPC)

PPC is a prepayment metric for HECMs measuring prepayment rates by loan age. PPC is a standard prepayment matrix found in many Ginnie Mae HMBS and HREMIC offering documents. Prepayment measured by PPC generally does not include any loans assigned to HUD at the 98% of MCA threshold.

 

Principal Limit

The principal limit is the amount the HECM borrower can borrow at closing, equal to the allowable LTV ratio multiplied by the Maximum Claim Amount.

 

Proprietary Reverse Mortgage

A proprietary reverse mortgage is any non FHA-insured reverse mortgage.

 

Record Date

The date upon which ownership is determined for the next bond payment.  In mortgage bonds, it is typically the last business day of a month. Therefore, the HMBS certificateholder of record as of April 30th would receive the bond payment on May 20th. The bond registrar is responsible for keeping track of the owners of record. If a trade settles on May 12th, the buyer waits until June 20th to receive its first payment. The seller in the trade settling May 12th would still receive the May 20th payment.

 

Reverse Mortgage

A reverse mortgage is a first-lien, home equity line of credit on a primary residence, with no monthly payment obligation and an event-based maturity, for homeowners aged 62 and older.

 

Servicing Fee Set-Aside

The servicing fee set-aside is an estimate of the present value of all future servicing costs, which is deducted from the Principal Limit, but not added to the loan balance.

 

Settlement Date

The date upon which a security trade settles, and cash is paid by the buyer to the seller in exchange for ownership in the security.

 

Single Monthly Mortality (SMM)

SMM is a mortgage loan prepayment metric that denotes the percentage of loans paying off in a given month. For example, a pool of 1000 loans with a 10% SMM means 100 loans payoff in month one, 90 loans payoff in month two, 81 loans payoff in month three, etc.

 

T&I Default

A T&I default is a borrower default on real estate taxes and/or homeowner’s insurance. A HECM in T&I default is not eligible for put back to FHA.

 

Total Annual Loan Cost (TALC)

The TALC is a summary of all of the costs associated with taking out a reverse mortgage, disclosed as a single annual average rate.

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