Editor: David Reiss
Brooklyn Law School

November 15, 2017

The FHA’s Ailing Reverse Mortgage Program

By David Reiss

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The Fiscal Year 2017 Independent Actuarial Review of the Mutual Mortgage Insurance Fund: Cash Flow Net Present Value from Home Equity Conversion Mortgage Insurance in Force has been released. It has some bad news:

FHA provides reverse mortgage insurance through the HECM program. HECMs enable senior homeowners to access the value of their homes. The program began as a pilot program in 1989 and became permanent in 1998. Between 2003 and 2008, the number of HECM endorsements grew because of increasingly widespread product awareness, lower interest rates, higher home values and higher FHA mortgage limits. Prior to fiscal year 2009, the HECM program was part of the General Insurance (GI) Fund. The FHA Modernization Act within the Housing and Economic Recovery Act of 2008 (HERA) moved all new HECM program endorsements into the MMIF effective October 1, 2008.

The Cranston-Gonzalez National Affordable Housing Act (NAHA), enacted in 1990, introduced a minimum capital requirement for MMIF. By 1992, the capital ratio was to be at least 1.25%, and by 2000 the capital ratio was to be no less than 2.0%. The capital ratio is defined by NAHA as the ratio of capital plus Cash Flow NPV to unamortized insurance‐in-force (IIF). NAHA also implemented the requirement that an independent actuarial study of the MMIF be completed annually. HERA also amended 12 USC 1708(a)(4) to include the requirement for the annual actuarial study. Accordingly, an actuarial review must be conducted on HECM mortgages within the MMIF. In this report, we analyze the HECM portion of the MMIF, which is mortgages endorsed in fiscal year 2009 and later.

Pinnacle projects that, as of the end of fiscal year 2017, the HECM Cash Flow NPV is negative $14.2 billion. (4, citation omitted, emphasis in the original)

With the housing market on the mend, Congress should ensure that essential infrastructure of the housing finance market is on solid footing. The HECM program should not have a negative cash flow (net present value) while the housing market is healthy as that will compound the bad news when the market takes a turn for the worse.

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