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Read more: FHA’s Underwater Problem – Is the Worst Over?FHA recently released another updated Home Equity Conversion Mortgage (“HECM”) loan level data file, this time showing all FHA-insured reverse mortgages originated through November 2011. Once again, prepayment rates declined to new lows: the annual prepayment rate for seasoned HECMs is about 4.7%, compared to the historical average of 6.8%. We have adjusted our HECM…
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Read more: FHA Fiscal Year 2011 Annual Reports – Still Too RosyHUD released its FY 2011 annual reports on November 15, 2011, including the HUD Mutual Mortgage Insurance (MMI) report, the FHA Annual Management Report (AMR), and the HECM MMI Actuarial Analysis. Upon review, our conclusion is that HUD is still significantly understating the expected future losses in the HECM book of business. Others have concluded…
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Read more: Ed GainorAll of us at New View Advisors join our friends at Bingham McCutchen and the entire securitization community in mourning the loss of Ed Gainor, who passed away on July 22nd. Ed was a securities lawyer par excellence, and he was instrumental in the birth of the reverse mortgage capital markets. Ed was a teacher…
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Read more: FHA’s Underwater Problem – And Its Way Back to the SurfaceFHA recently released an updated loan level data file showing all HECMs originated through January 2011. Not surprisingly, prepayment rates have declined. We have adjusted our HECM “Prepayment By Borrower Age” table accordingly. The real news is that FHA included some new data fields in the January 2011 data set that were not released previously.…
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Read more: Understanding Reverse Mortgage Prepayments: Focus on Seasoned Reverse Mortgage LoansPart II: Loan Age vs. Borrower Age No one takes out a home mortgage loan with the intention of repaying it immediately. A mortgage loan is a long-term loan designed to finance a long-term asset. Some mortgages do payoff quickly, mostly due to unexpected life events or refinancing opportunities. However, prepayments in the first months…
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Read more: Understanding Reverse Mortgage Prepayments: Focus on HECMsPart I: Mortgage Prepayment Risk in Reverse Mortgage investors spend a great deal of time and effort analyzing prepayment risk, and with good reason. The mortgage borrower usually receives a valuable option: the ability to prepay at any time in whole, or in part, without penalty. This is sometimes easier said than done, especially in…
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Read more: HECMs: Are We Still In Trouble?Part II: The Uncertain Present – Should Auld Principal Limits Be Forgot? With so few HECMs paying off, we can only estimate FHA’s total risk profile and likely profit (or loss) outlook. Two recent attempts to quantify this risk have been made. First, in October 2009, IBM published a study entitled “An Actuarial Analysis of…
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Read more: HECMs: Are We Still In Trouble?Part I: The Ghost of Principal Limits Past Three months have passed since we published the last installment of our three-part “Trouble With HECMs” blog, enough time for the dust to settle on a number of fronts. First, FHA made a major change to its Home Equity Conversion Mortgage (HECM) reverse mortgage program, lowering by…
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Read more: The Trouble with HECMs: Part IIIIn the third and final installation we propose a solution to end “The Trouble with HECMs.” In Parts I and II, we described the problems associated with the current high-cost, one-size-fits-all HECM reverse mortgage loan. Despite the high fees to the borrower (an Initial MIP equal to as much as 2% of the property value…
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Read more: The Trouble with HECMs: Part IIIn the first part of this series, we outlined “The Trouble with HECMs,” the result of extremely high Loan-to-Value (“LTV”) ratios permitted by the HECM program, which left FHA highly exposed to losses during the current deep slump in home prices. FHA projects that it will lose $798 million on $30 billion of HECM loans…