Last month, the Federal Housing Administration revealed that its reverse mortgage program was continuing its detrimental drain on the Mutual Mortgage Insurance Fund.
In its annual Report to Congress, the FHA said the HECM program was operating under a negative capital ratio of 18.83% and a negative economic net worth of $13.63 billion in the last fiscal year.
Despite its negative subsidy, FHA Commissioner Brian Montgomery said the agency remained “committed to maintaining a viable HECM program so that seniors can continue to age in place.”
If that’s the case, the Urban Institute says the FHA should share more HECM data so that researchers can better assess its risk factors and help stop the bleeding.
“We would encourage the FHA to release more loan-level data on the reverse program so that researchers can better understand the drivers of risk in this program – one that appears to be hemorrhaging even in an environment with 7% home price appreciation,” the independent think tank said in a recent report on FHA trends.
While the report notes that the overall performance of the FHA’s mortgage portfolio is “strong and profitable,” it says the complexity of the HECM program has prevented the strong housing market from elevating its performance, as it has done for the FHA’s forward book.
The authors acknowledge that the steps taken in recent years to improve the program – like principal limit cuts and escrows for riskier borrowers – should be showing up in the numbers, and they point out positive signs of their benefit that are already evident.
Type 1 claims, which represent losses from disposing HECM-backed properties, have fallen from $677 million to $612 million, the authors note, while recoveries are increasing.
The authors also take issue with the appraisal bias that the FHA has pinpointed as problematic for HECMs, which it addressed in October by instituting a second appraisal rule for select HECM loans.
They assert that the FHA itself estimates that his bias has fallen below 5% for the greater mortgage market since it peaked 10 years ago, and that “this level of appraisal bias should not add much incremental risk given that seniors can tap only about half the equity in their house through the program.”
Until researchers can access more data to better understand factors hindering the HECM’s performance, the Urban Institute suggests policymakers consider removing reverse mortgages from the MMI Fund so that its performance can be assessed more acutely.
