MMI Fund Improving, but HECM Needs Further Attention

While changes made to the Home Equity Conversion Mortgage program in October 2017 are beginning to positively impact program performance, the Federal Housing Administration reported today in the release of its 2018 Annual Report to Congress that the Fiscal Year 2018 HECM portfolio has a negative economic net worth of $13.63 billion and a negative capital ratio of 18.83 percent.

FHA’s FY2018 forward mortgage portfolio, by contrast, has a capital ratio of 3.93 percent and a positive economic net worth of $46.8 billion. Despite the drain caused by HECM, the Mutual Mortgage Insurance Fund’s FY 2018 capital ratio is 2.76 percent, the fourth consecutive year this ratio exceeded the statutory minimum of 2.00 percent.

Though concerning, HECM’s economic net worth improved by over $870 million compared to last year when it was a negative $14.5 billion.

During a press briefing this morning, Secretary of Housing and Urban Development Dr. Ben Carson commented that “the financial health of FHA’s single-family insurance fund is sound,” but he indicated that HECM “continues to be a significant drain on FHA’s insurance fund — younger borrowers with forward mortgages continue to subsidize senior borrowers.”

FHA Commissioner Brian Montgomery told reporters that FHA remains “committed to offering a viable HECM program to help seniors age in place” and that policy changes implemented in 2017 are starting to have a positive impact that he and his support team will continue to monitor.

When asked whether further changes would be made to principal limit factors, Commissioner Montgomery said, “We recognize the burden this places on the industry and the network on housing counselors.” He added, “We wanted to stave off premium increases and protect [principal limit factors]. We were able to get to a place where we did not have to have further reduction for PLFs. We will continue to monitor the quality of the book. We remain optimistic that the quality will improve.”

NRMLA President and CEO Peter Bell issued the following statement:

We are encouraged by today’s remarks by HUD Secretary Ben Carson and FHA Commissioner Brian Montgomery that changes to the HECM program seem to be having a positive impact on the MMI fund. As released today in the Actuarial Report, HECM’s current economic net worth of negative $13.63 billion, while concerning, represents an improvement of over $870 million compared to last year when it was a negative $14.5 billion. We agree with the HUD leadership that it is early and, as Secretary Carson said, “we are just now seeing the effect of the changes that were made.”

At the same time, we all 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.