Urban Institute Advocates Servicing Reforms to Improve HECM

Urban Institute Advocates Servicing Reforms to Improve HECM

If HUD accepted assignments of HECM loans but allowed servicing to be retained by the current servicers, the health of the Mutual Mortgage Insurance Fund would improve without impacting the HECM program’s scope, according to a new blog posting from Urban Institute researchers Laura Goodman and Edward Golding.

“The evidence clearly indicates that the FHA is suffering greater losses than necessary by transferring servicing when loans reach 98 percent of the initial home value,” wrote Golding and Goodman in a blog titled, The FHA Can Improve its Reverse Mortgage Program by Changing Servicing Protocol. “If the FHA were to allow existing servicers to retain the servicing for the rest of the life of the loan, it would stem these unnecessary losses. This is critical to the future viability of this valuable program for seniors.”

When servicers keep the loans that cannot be assigned, the losses are much lower because FHA policies do not maximize the value of the properties, and servicers’ incentives, in combination with their specialized knowledge, reduces losses.

Another possible alternative that needs further study is to develop a securitization program to repool loans after they have reached 98 percent of the maximum claim amount and can no longer be included in the current Ginnie Mae HECM Mortgage-Backed Security (HMBS) program.

“This new securitization product (referred to as HMBS 2.0),” the researchers noted, “would lower the funding cost for the servicer and provide an incentive not to assign the loans to the FHA.”