March-April 2021

FHA Annual Report: Economic Value of HECM Improves by $5.4 Billion The financial health of the Home Equity Conversion Mortgage (HECM) portfolio improved dramatically over the past year, ending Fiscal Year (FY) 2020 with a stand- alone capital ratio of negative 0.78 percent, compared to negative 9.22 percent in FY 2019, according to the 2020 Annual Report to Congress that the Federal Housing Administration (FHA) published late in 2020. Put another way, the economic net worth of the portfo- lio improved by $5.4 billion over the past year from a neg- ative $5.9 billion in FY 2019 to a negative $0.5 billion in FY 2020. “Over the last three years, FHA has taken several actions to improve the HECM portfolio’s outlook and will con- tinue to take whatever steps are necessary to stabilize the HECM program for borrowers and taxpayers,” says the annual report. “The success of these policies — financial assessment, initial disbursement limits and collateral risk assessment— underscores the strong leadership that Deputy HUD Secretary BrianMontgomery and FHA Commissioner Dana Wade have provided,” says NRMLA President Steve Irwin . Research Confirms HECM Reforms Have Reduced T&I Defaults An analysis of Home Equity Conversion Mortgage (HECM) data confirms that financial assessment and upfront draw restrictions are having the desired effect of reducing tax and insurance defaults. That’s according to a newly published research paper authored by Ohio State University Associate Professor Dr. Stephanie Moulton and Federal Reserve Bank of Philadelphia Advisor and Research Fellow Lauren Lambie-Hanson. Moulton and Lambie-Hanson analyzed HECM origi- nation and performance data provided by the Department of Housing and Urban Development from December 2012 to May 2019. “Our analysis of the HECM loan data finds a significant reduction in the proportion of HECM borrowers ever expe- riencing a T&I default of $1,000 or more within the first three years after originating their loan,” say Moulton and Lambie-Hanson. “Specifically, prior to the policy changes, the three-year default rate was 8.7 percent, dropping to 5.5 percent after the restricted draw policy change and to 2.2 percent after the financial assessment policy change. This is promising and is in line with industry reports of reduced rates of default.” However, some of this reduction is offset by a corre- sponding increase in unscheduled lender payments of these expenses out of a borrower’s line of credit. This reliance on the line of credit may not be sustainable over the long term, note the authors, given that over 40 percent of HECM bor- rowers have exhausted their line of credit within 13 months of origination and nearly 2/3 have exhausted their line within 36 months. Learn more at bit.ly/2KSVt3n . For an in-depth interview with Moulton, see “From the Top” (p.12). One-Third of Americans Say COVID-19 Altered Their Retirement Plans The economic impact of the COVID-19 pandemic has changed the retirement timeline for 30 percent of Americans, according to research from Northwestern Mutual’s 2020 Planning & Progress Study. The study finds that 20 percent of U.S. adults age 18-plus plan to delay retirement beyond what they expected, while ten percent plan to accelerate their timelines and retire earlier than anticipated. When askedwhat age people expect to retire,Millennials indicated the earliest target date, 61.3 years old, followed by Gen Z (62.5), Gen X (63.2) and Baby Boomers (68.8). What’s News EVERYTHING NEW YOU NEED TO KNOW People are talking about ... 8 REVERSE MORTGAGE / MARCH-APR I L 2021