Disqus - Latest Comments for James_E_Veale_CPA_MBT

Re: HECM mortgage-backed securities data reveals low flow and lots of payoffs

James_E_Veale_CPA_MBT — Mon, 17 Sep 2018 19:19:19 -0000

What sign of recovery? Since the nadir was first identified as April 2018 on June 6th, we have seen three straight months of endorsements lower than those for April 2018. Endorsements look to be less than 10,000 for the total of September, October, and November 2018, a very, very low total. Mr. McCully and I fully agree that there is no current sign of recovery, just a dead cat bounce at the most.

Mr. McCully and I do not agree as to the time period where fixed rate HECM Standard endorsements dominated. While there were some fixed rate HECM Standards endorsed in fiscal 2009, they were many more endorsed in fiscal 2013, when all fixed rate Standards were eliminated. The total endorsed in fiscal 2009 was just over 13,000 while the total for fiscal 2013 was over 35,000. There was a huge difference between the total HECMs endorsed in fiscal 2009 and those endorsed in fiscal 2013.

For a fiscal year that started with 560,000 endorsed HECMs still active, as of July 31, 2018, HUD shows active HECMs of active HECMs of just over 554,000 for a net reduction of about a little less than 6,000 endorsed HECMs. This is the combined total of endorsed HECMs still active in the G&SRI Fund and in the MMI Fund. There also HECMs that are not active but still outstanding as assigned HECMs for which HUD provides no monthly information in its monthly Production Report.

Based on the current case number assignment trend, fiscal 2019 may have less total endorsements than fiscal 2018. While we can expect a general rise in month-to-month HECM endorsement comparisons, this is not 2005, 2006, or even 2007 when HECM endorsement growth was the norm. Let us hope for slow but steady improvement but fight for more. The proof will be in the endorsement numbers for next fiscal year.

For those not paying attention to the calendar, fiscal 2009 starts in 14 days and fiscal 2020 is less than 13 months away. The case number assignments ready for endorsement in September, October, November, and December 2018 are now inventory. In all but a few exceptions, case number assignments after today will not become endorsed until calendar 2019, four months from now.

Re: HECM volume sees second month of growth

James_E_Veale_CPA_MBT — Tue, 11 Sep 2018 03:50:08 -0000

There is a need to be very cautious in making these kinds of predictions. On June 6, 2018 in an RMD article, one industry statistical leader claimed signs existed indicating that the endorsement count for April 2018 was the nadir for monthly endorsement counts following 10/2/2017. The endorsement count for June 2018 came out 25 days later and that count came in 15% lower than the count for April. We have had three months of endorsement counts released since June 6, 2018 and the counts for each and every one of those months were lower than the endorsement count for April 2018. So even though the endorsement counts for July and August 2018 were higher than for June 2018, the monthly endorsement count since June 2018 has yet to exceed the count for April 2018.

While the endorsements may go up another 9% for September, October should go down by about 3%. So as of yet, there is no clear picture that endorsements for fiscal 2019 will even reach the total for fiscal 2018.

Below is a graph showing our endorsement history. The last six fiscal years are circled in red indicating our current pattern of slightly downward sloping, peak to valley, secular stagnation. Since HUD has not posted total endorsements for September 2018, that monthly total was estimated. With three months of low total endorsement counts, it is believed that for the first time in seven fiscal years, fiscal 2019 may be the fiscal year that breaks the peak to valley portion of the current pattern.

https://uploads.disquscdn.c...

Re: Q&A: AAG CEO Reza Jahangiri on the lender’s rebrand

James_E_Veale_CPA_MBT — Fri, 24 Aug 2018 15:53:35 -0000

Reading the solution to the HECM losses in the MMIF is rather interesting. Even if HUD committed to the changes Mr. Jahangiri so briefly summarizes, there is the matter of the independent actuaries. As of last year it was NOT the job of the independent actuaries to predict the value of the HECM portion of the MMIF, only to express an opinion on the reasonableness of the value of the HECM portfolio alone. While the HECM program keeps all of its active HECMs endorsed after 9/30/2008 withing the MMIF, all assets and liabilities created by the HECMs in the MMIF HECM portfolio are in the MMIF but the annual report of the independent actuaries no longer opines on their stated value. That is allegedly covered in the audit of the MMIF by the HUD Office of the Inspector General.

Without any announcement from HUD confirming the position that Mr. Jahangiri states, it is hard to believe that anything other than further reductions of the PLFs will deal with the losses in the projected side of the ending balance in the MMIF unless the model assumptions he mentions include lower PLFs. But then the independent actuaries must buy off on these changes as well. Financial assessment can be changed but not eliminated from the program, despite its very negative impact on projected MMIF HECM losses; such changes may increase HECM volume but not the projected losses that financial assessment has been solely responsible in creating.

Much more can be said about this interview but that is sufficient for now.

Re: One in four U.S. properties are equity rich

James_E_Veale_CPA_MBT — Thu, 16 Aug 2018 16:59:08 -0000

This article clearly demonstrates why HECMs should be based on geocentric appreciation rates. It becomes painful discussing the losses in the MMIF. It becomes even a more difficult problem to discuss the losses when it seems the only known cure is even lower PLFs since it is doubtful if higher IMIP and ongoing MIP will do the trick alone.

NRMLA has stated that it has made its recommendations to HUD to lower the MMIF HECM losses. It states it is working with HUD on implementation. Yet will the independent actuaries now and in the future (HUD has changed actuaries over the last nine years) buy into the HUD accepted suggestions? Hopefully NRMLA will explain all of this at its national convention in about two months in San Diego.

For those readers who do not listen to Shannon Hick's weekly industry updates, we both believe that PLFs that are reflective of historical appreciation rates in a community could effectively reduce losses in the MMIF. This would mean PLFs would be stratified into five to eight ranges with the PLFs in the highest range going to the communities having the historically highest appreciation rates say in the last five years. PLFs ranges would still be broken down by age and expected interest rates.

The losses in the MMIF are principally the result of projected home values being less than projected loan balance dues at termination. By reducing the PLFs within communities that are less likely to grow, projected termination losses on prospective endorsed HECMs should be considerably lower. The range assigned to a community could also be lowered if home values in a community seemed to be near a bust. The idea is merely exploratory at this time.

While some originators will gravitate to it, others will find it less favorable.

Re: Hard-up for cash? Sell your home and then buy it back

James_E_Veale_CPA_MBT — Thu, 09 Aug 2018 17:30:01 -0000

Jessica,

It was good to speak to you on the phone. I like the new situation you have.

I am just writing to memorialize that the "decide to move on" had nothing to do with relocating but with simply returning to home ownership rather than remaining as tenets.

Thanks for that answer.

Re: Would a reverse mortgage by any other name smell… sweeter?

James_E_Veale_CPA_MBT — Thu, 09 Aug 2018 16:41:07 -0000

John,

Thank you for addressing the most important and basic issue of what are acceptable names.

Federal law defines what a reverse mortgage transaction is at 15 USC 1602(bb). Federal law at 12 USC 1715z-20 effectively tells us that a Home Equity Conversion Mortgage (HECM) is a reverse mortgage insured by FHA.

So for clarity sake and based on federal law, any reverse mortgage that is insured by FHA is a HECM. Any reverse mortgage not insured by FHA is correctly called a reverse mortgage.

For those who have stated otherwise, reverse mortgages that were closed post 1988 find their defined names in federal law, not industry lore, or current popular anecdote.

Lenders need to ask themselves if calling a HECM, Mr. Pricewaterhouse (of Pricewaterhouse/Coopers fame, a Big Four accounting firm), is a suitable substitute for the name HECM in the eyes of FHA, BCFP, or potential plaintiffs and their attorneys. If so, then anyone who likes the name should use it. Perhaps the NRMLA ethics committee should chime in.

Re: Hard-up for cash? Sell your home and then buy it back

James_E_Veale_CPA_MBT — Thu, 09 Aug 2018 15:48:53 -0000

John,

Why I replied was that you stated borrowers "will not have a ... mortgage payment." You did not qualify it with the adjective "monthly" as you did in your reply. We excessively believe in free do overs in the industry but the public is less prone to allow that when it is their money on the line.

In my career as a CPA preparing hundreds of income tax returns per year and then later in my career reviewing far more annually, I have seen residential home mortgages with required semi-monthly, monthly, quarterly, semi-annually, annually and other defined periods for payments of interest and principal. That is why I like and use the adjective "periodic" when it comes to more than one required mortgage payment over the expected life of the mortgage.

My point is that like all other mortgages, reverse mortgages have at least one required mortgage payment but that is at termination. There are no required periodic payments of interest, MIP, or interest with reverse mortgages but there is one required mortgage payment 1) in the form of a cash equivalent acceptable to the note holder or 2) through surrender of title to the collateral.

Take care and I will call you soon.

Re: Hard-up for cash? Sell your home and then buy it back

James_E_Veale_CPA_MBT — Wed, 08 Aug 2018 20:14:45 -0000

John,

Your comment is well reasoned except when you say: "At least with the HECM, they will not have a ... mortgage payment...." There is always at least one required payment with all mortgages; however, there are no required periodic payments of interest, MIP, or principal with reverse mortgages.

Re: Hard-up for cash? Sell your home and then buy it back

James_E_Veale_CPA_MBT — Wed, 08 Aug 2018 17:35:45 -0000

Jessica,

Can you expound on the following found at the end of the second sentence in the second paragraph? "...then buy the house back when you ... decide to move on." Please note that I removed the "'re" in "you're."

Specifically, are you saying that the leaseback contract requires that the home be purchased back from the leaseback company if the lessee decides to move?

What is the purchase price of the home and how is that determined? Many people overlook this aspect and only look at the sales price of the home if and when the senior decides to reacquire the home. However, both are critical to understanding the wisdom of entering into such transactions. In the mid 1980s, I have advised on the tax implications of leasebacks on $300 million commercial buildings that had varying sales prices depending on a limited range of lease payments.

Why aren't they offering a sale of the remainderman interests with the senior as the life tenant?

I know you are just reporting on the availability of a HECM alternative and if you do not choose to respond to any questions but my first in paragraphs 1 and 2 above, that is quite understandable since you are not a rep for that company.

Thank you.

Re: Every elderly Australian will now be offered a reverse mortgage

James_E_Veale_CPA_MBT — Wed, 08 Aug 2018 16:57:48 -0000

Mr. Gaffney is precisely correct in denying that the US has an aging in place policy in regard to any type of reverse mortgage. That is not the principal purpose of a HECM. It is a very questionable byproduct. See 12 USC 1715z-20(a) for the purpose of the program as enacted by Congress and President Reagan. (Newspaper articles on what President Reagan may have said back then about the program are today's Presidential tweets and campaign promises.)

For example, consider the fully funded LESA. It is not designed to allow the senior to age in place. It is merely designed as a plug for avoiding defaults on taxes and insurance payments through the approximate TALC life expectancy of the youngest borrower. When the available LESA funds go to ZERO, payment of taxes and insurance becomes the total responsibility of the borrower. With over 50% of HECM borrowers having an overall life expectancy in excess of the LESA life expectancy, does anyone really believe that the senior will be better equipped financially with a stronger financial acumen and willingness to meet these obligations at the end of the LESA than the date that the HECM closed?

LESAs are fundamentally the antithesis of "aging in place." Those who engage seniors to obtain them when not required saying that the LESA is designed so that borrowers need not worry about defaults on paying of taxes and insurance are perpetrating a lie. My dad is now over 100. If my father had applied for a HECM on May 1, 2015 (when he was almost 97) and voluntarily taken a fully funded LESA, he would be on his own for taxes and insurance next year, at least to the extent that the available amount in the LESA was insufficient to pay those bills in full. 3 years ago my father was taking care of such matters but not so today at least not without reminders. Who would have the servicer reminded of the responsibility to pay taxes and insurance when the available fund was incapable to pay them, the borrower? If so, then there is a systematic denial in servicing reverse mortgages that the financial acumen of seniors diminishes with age.

Not long ago, an industry participant was bragging about how successful her firm was in getting borrowers to take on fully funded LESAs as a protection against defaults for not paying taxes and insurance when no LESA was required. When confronted with the issue that fully funded LESAs were only designed to pay for the tax and insurance until TALC life expectancy, she replied that she and her firm were both ethically NRMLA compliant. I guess that is one way to look at NRMLA ethics. I am not so sure that state courts or regulators would feel NRMLA ethics cast the bright line in such matters.

Now one thing that could allow HECMs to be seen as an aging place in product could be tenure payments. However, what is the percentage of borrowers using this payout option today, less than 2%? Let us face it. HECMs were never primarily intended to be a financial product for aging in place. It is a financial cash flow mortgage product and that is it. Byproducts are just that.

If the US adopted the Australian model, the US government is then generally subsidizing wealthier seniors (those with homes) over homeless seniors, particularly homeless vets. Not even a Democratic capitalist like Senator Warren or an Independent socialist like Senator Sanders would feel comfortable in that situation. I would support both of them in that regard.

Re: Would a reverse mortgage by any other name smell… sweeter?

James_E_Veale_CPA_MBT — Wed, 08 Aug 2018 16:04:38 -0000

In US financial terminology, equity release has a specific conceptual meaning and it is not mortgages. Nice names that are seemingly deceitful should be avoided in the US since they are generally dealt with through regulatory bodies whether federal or state.

Naming the product with a seemingly deceitful name could likely lead states like California, Minnesota, and other progressive states to create laws outlawing their use. Yet that would rarely be the worst part of such legislation. Progressive states find ways to add draconian provisions to "well meaning" legislation. By now most of us are more than aware of the unintended consequences of the actions of the well meaning.

Re: HELOC of HECM, what's your choice?

James_E_Veale_CPA_MBT — Tue, 07 Aug 2018 17:24:17 -0000

Trouble with this article is that you have to go to another article to get the fullest comparison of HELOCs and HECMs.

As a CPA, I like to know the position of the mortgage as to claims. One nice thing about the HELOC is not only the size of the total mortgages that can be on the property but also that one can keep the first and take a HELOC. A HELOC can be a true home equity loan in that the claim is equal to the total value of the property minus all mortgages with a higher claim position. That means if you like your first for any reason (low interest rate, low payments, no FHA MIP, etc.) you can keep it. That is not true with a HECM which must always be in the first position with few exceptions.

Also it is not true that a HELOC cannot be a first. You commonly find that situation where seniors have paid off their first after getting the HELOC.

If the HELOC was not a mortgage that financed the purchase of the home, it is generally recourse; however, in states such as California and Minnesota, lenders rarely go to court to obtain a deficiency judgment due to costs and redemption rights of those foreclosed. That is why California is classified as a nonrecourse state even though many California mortgages are recourse. So in nonrecourse states, at to borrowers there is little value in the nonrecourse nature of any reverse mortgage including HECMs. Since MIP is a reimbursed cost of the lender, rarely does MIP have much direct value to the borrower.

The two articles combined were informative but were not comprehensive or complete; however, as a first time reader of either Ms. Lloyd or Ms. Johnson, there was much value in the combined content.

Re: Who uses a reverse mortgage to purchase a house?

James_E_Veale_CPA_MBT — Mon, 06 Aug 2018 02:45:23 -0000

John,

If theories, dreams, and ideas alone could generate HECM H4P endorsements, our industry would be flooded with demand for H4Ps, particularly from Realtor referrals. For almost a decade we have been told the same things over and over about how to reach Realtors and builders, yet with little result.

As to managing cash, I urge H4P borrowers to maximize the HECM adjustable rate line of credit at loan closing. That means the H4P borrower should come to escrow closing with as much cash as they have available, up to the purchase price of the home and most of the upfront HECM H4P costs. A HECM line of credit is clearly a contingent cash resource that is available within a few days from requesting a draw. Yet the HECM line of credit grows much faster than cash left in most banks. As a cash flow product, the HECM lines of credit are very effective due to its growth.

Yet to be clear, the H4P has very poor demand. While it is perfectly OK to refer the HECM as a sleeping giant (although even that is a stretch), the ultimate size of the H4P market has not shown itself to reach even 3,000 endorsements for any fiscal year to date. H4P should not be abandoned or no longer insured by FHA but it continues to show itself to be a low volume product for more than a decade after the passage of HERA.

Due to negative arbitrage, I would cautiously recommend a H4P to be fixed rate.

I hope you had a great weekend.

Re: Managing Debt in Retirement Takes Some Planning

James_E_Veale_CPA_MBT — Sun, 05 Aug 2018 19:35:04 -0000

"The retiree can draw on the HELOC rather than selling stocks in a bad market, and pay the money back — or not — in good markets."

I am not aware of a single HELOC that allows that to be done without creating a default for nonpayment. Throughout the paragraph from which the quotation is taken, there is only one type of HELOC referenced (other than the quoted sentence) but that HELOC is always referenced as a "reverse mortgage HELOC." I believe the author was referring solely to reverse mortgage HELOCs in the quotation above.

Also I believe that Dr. Davison, CFP was referring only to reverse mortgage HELOCs when he is quoted as saying the following: “'The key advantage is ability to choose if and when to make payments, and ability to access a growing line of credit,'”

A response by both parties would be helpful. Confusing a HELOC with what the author names reverse mortgage HELOCs does not seem to be the purpose of the article.

Re: HECM volume running really low

James_E_Veale_CPA_MBT — Fri, 03 Aug 2018 14:23:47 -0000

Quoted from above: “"HECM endorsement volume gained fractionally in July, up 0.4% to 3,359 loans,' the report states." Mr. Gaffney's quote is 100% accurate BUT the endorsement total reported for July 2018 is wrong.

The count for July 2018 was 2,908. The count for May 2018 was 3,359. What is going wrong at RMI? The actual count in their Competition portion of their report gets the total right but what in the world is going on with their summary page?

What is the purpose of the per business day range computation of Case Number Assignments for February through May? Since there is no explanation, one can only assume that it is somewhat irrelevant to the report.

In early June 2018 RMI predicted that based on a 14 endorsement increase from April to May 2018, "is the biggest sign yet that HECM volume may have bottomed following the substantial program changes that took effect Oct. 2, 2017...." Total endorsements for June 2018 dropped by 521 endorsements to a total for June 2018 of just 2,838. July 2018 came in 70 endorsements higher at 2,908 endorsements causing RMI to once again claim that this time June is the nadir for endorsements in 2018.

What drove RMI to make such a claim in early June 2018 or early August 2018 is not known.

Re: Reverse mortgages for the win

James_E_Veale_CPA_MBT — Thu, 02 Aug 2018 15:58:18 -0000

Ms. Guerin,

Here's to your success. Without Reverse Review, there has been a hole in the industry.

Re: AAG Rebrands as a Retirement Solutions Provider, Rolls Out New Selleck Spot

James_E_Veale_CPA_MBT — Mon, 23 Jul 2018 04:00:33 -0000

Who can reasonably and rationally dispute the existence of the financial need of retiring Baby Boomers and that one very possible solution to their cash flow needs is the HECM? Yet an enormous chasm exists between the need and the use of this unique solution.

For well over a decade since joining the industry in late 2004, the education theme has been played again and again with the same message that the chasm exists because of a lack of education on reverse mortgages. Back in 2004, neither Mr. Robert Wagner nor Mr. Tom Selleck had done a single TV spot on reverse mortgages; yet our per originator HECM production is lower today than over a decade in 2004.

When the opportunity came for a massive education campaign in the last five years, lenders who once agreed that education was the most crucial HECM issue found last minute priorities that blocked their participation in that campaign.

With the number of Case Number Assignment lower than 4,700 for the month of May 2018, is it any wonder that the more successful lenders are now searching for more fruitful endeavors while not abandoning their reverse mortgage operations? However, no longer will HECMs be the primary focus for these lenders. Will the industry suffer some as a result? There is no question it will.

Re: Canada’s Reverse Mortgage Leader Develops More Emotional Pitch to Seniors

James_E_Veale_CPA_MBT — Fri, 20 Jul 2018 13:53:38 -0000

While the Canadian reverse mortgage is promoted as doing better than American reverse mortgages, I would love to see the origination stats for Canadian reverse mortgages. Until then I am skeptical at best.

Re: Researchers Warn ‘Baby Boomer Sell-Off’ Could Flood Certain Housing Markets

James_E_Veale_CPA_MBT — Fri, 20 Jul 2018 13:44:31 -0000

Right now the oldest Baby Boomers are only 72 years old. In 10 years, I expect to see downsizing become far more prevalent among older Baby Boomers. By then grandchildren will be out on their own and most great grand parents will find providing care for great grandchildren difficult if not physically impossible.

Baby Boomers may be acting like seniors later in age than their parents and their grandparents but the effects of aging limits most of the activities seniors enjoy as they age. Baby Boomers are no different although we are seeing the ravages of old age occurring later in life for these seniors.

Re: How the West Was Won: Reverse Mortgages’ Left Coast Dominance

James_E_Veale_CPA_MBT — Thu, 19 Jul 2018 05:44:13 -0000

wshart (7/18/2018 -- 6PM PDT),

You say that:

1) I ignore the CNAs (case number assignments) assigned during September 2017 which did not get endorsed and because of what I ignored "all of the monthly and quarterly statistics" I am "using for predictions" are distorted.

2) "Simply put, before September 2017, case numbers averaged 7,017 per month" and "now they average 4,077 (11/17 thru 5/18)."

3) Some good news is that in May 2018, case numbers were up 6.2% from the average of the prior three months (2/18 thru 4/18).

As to your first contention, you ignore not only the amount of CNAs that were assigned during September 2017 and eventually got endorsed but even worse you ignore the applicable MACR (modified, adjusted conversion rate). The MACR for the HECMs endorsed from May 1, 2017 to April 39, 2018 (the second 12 consecutive month period) was 63.7355% and for the period of May 1, 2016 to April 30, 2017 (the first 12 consecutive month period), that rate was 64.4880%. They are virtually the same, meaning that the rate of the number of CNAs assigned during September 2017 which got endorsed was about the same as the average for that year and the year before that. There is NO truth to the myth that the rate of CNAs assigned during September 2018 was substantially lower than CNAs assigned in other months.

The pull forward effect of Mortgagee Letter 2017-12 which produced the largest Case Number Assignments for any month in the history of the industry at over 20,400 CNAs was that such a work overload at the lenders and HUD that the normal lag time of 4 months for the average endorsed HECM to go from CNA to endorsement got extended to about six months. That is why the second 12 consecutive month period I reference ends on April 30, 2018, seven months after September 2017. So by comparing the MACR for that 12 month period to the MACR of the 12 month period that immediately precedes it, we see the issue is one of delay NOT a substantial percentage of CNAs not getting endorsed.

How I forecast 46,700 to 51,300 endorsements for fiscal 2018 is simple. Using

1) total CNAs for March, April, and May of 2018 of 13,529;
2) the MACR for April 2018 of 64.4880%;
3) the total endorsements through 6/30/2018 of 39,377; and
4) the four month lag rule of thumb for the period it takes the average endorsed HECM to go from CNA to endorsement;

the forecast is about 48,100 endorsements for fiscal 2018.
Using the magic of UCLA upper division stat theory and CPA conservatism, a range develops of between 46,700 and 51,300 endorsements, inclusively, for the fiscal year 2018.

On a very preliminary basis, the endorsements for fiscal 2019 come in at a range of 42,000 to 44,000. That is based on a future value of 27,714 CNAs with a starting "payment" of 3,575 CNAs (November 2017) and extending that to 19 months minus the 27,714 CNAs which is 65,464 multiplied by an expected MACR for fiscal 2019 and then estimated using the same stat and conservativism principles previously referenced. The fiscal 2019 total endorsements are very, very rough and will be subject to change even if FHA makes no changes to the HECM structure for next fiscal year.

To fill in some missing information the MACR is the number of endorsements for a 12 consecutive month period divided by the 12 consecutive month period of CNAs that ends four months before the end of the 12 consecutive period for endorsements. So in the example above, the numerator of the MACR for the HECMs was the HECMs endorsed in the 12 consecutive month period ended April 30. 2018 of 56,634 while the denominator was the total CNAs assigned during calendar 2017 of 87,821 CNAs producing a MACR of 64.4880%. The endorsements for the 12 months ended 4/30/2017 were 50,917 while the CNAs for the calendar year 2016 were 79,888 for a MACR of 63.7355%.

Why 12 months is used in the MACR computation is so that the effects of seasonality are mitigated. Again the reason why the CNAs are also for a 12 consecutive period but one that ends four months earlier is to recognize the impact of the four month lag rule of thumb on the MACR computation.

Now using actual computations and data citations please explain how my forecast for fiscal 2018 endorsements and projection for fiscal 2019 relied on distorted data. It seems your claims were based on industry anecdotes and myths rather than any recognized type of review process. Or better yet give us your forecast and projection telling us the data you are relying on and fully disclosing everything used in making your computations including all significant assumptions.

Re: How the West Was Won: Reverse Mortgages’ Left Coast Dominance

James_E_Veale_CPA_MBT — Wed, 18 Jul 2018 20:11:37 -0000

wshart,

In order to see why we fully disagree, please see my response showing the date of 7/18/2018 and time of 6PM PDT.

Re: RMF Launches New Private Equity Edge Reverse Mortgage

James_E_Veale_CPA_MBT — Wed, 18 Jul 2018 15:54:27 -0000

ravens9111,

As to the pervasive reasoning that MIP is charged so that a HECM is nonrecourse, see Mr. Neumeyer's replies above. He and I know of many originators who say FHA insurance is charged so that the HECM is nonrecourse. That has been said on many, many occasions on the RMD website as well. Some have websites with articles stating the MIP is to make a HECM nonrecourse.

As to proprietary reverse mortgages not having MIP, it is wrong to conclude that the foreclosure of the lender will create any problems for the borrower or the lender as to those loans. The notes that have a positive value will generally be sold perhaps even at a premium. Those with a negative value will be sold to investors as well but at a discount. So in most cases the borrower will be OK and if the note was properly discounted, its buyer should be OK as well. It is the party that owns the note at the time of sale that will have problems if any.

The situation of the investor is much different with proprietary reverse mortgages than with the holder of an interest in a HMBS. If you do not understand that, please see your mentor.

So where is the disaster you speak of? If the terms of the loan are unfavorable to a new lender it will generally be reflected in the value that the potential purchasing market puts on it. It seems you are making a lot of assumptions in your description of such situations as a "complete disaster."

Re: How the West Was Won: Reverse Mortgages’ Left Coast Dominance

James_E_Veale_CPA_MBT — Wed, 18 Jul 2018 15:13:35 -0000

John,

It seems we read different articles. The one I read talked about two regions of the country that are called hotbeds for HECM endorsements.

Immediately it says why. "Much of this reverse mortgage activity is in the Seattle and Denver metropolitan areas, where property values are exploding and helping drive reverse mortgage volume, originators said." The rest of the article states what is causing this explosion in home values.

Reading between the lines, one might be able to see the things in the article you describe but the article implies that if your area of the country does not have the right ingredients, you will find originations much harder to come by than in Denver or Seattle which is generally true for most of the country.

Re: Carson: HUD Has ‘Made Tremendous Progress’ on Reverse Mortgages

James_E_Veale_CPA_MBT — Wed, 18 Jul 2018 02:43:57 -0000

Mr. McSherry,

Yours is but one situation.

Others have lower valued homes in high appreciation rate areas (such as Denver, CO and Bellevue, WA) and with time, their potential future principal limit could substantially exceed the balance due on their current HECM. While the future PLFs may remain low, we can only sell what we have at the time.

It is far more important that the HECM program not stay a money pit for the MMIF. When some get the HECM they think HUD has made an implicit promised to offer them HECMs in future years with the same terms which, of course, is not the case. Cutting PLFs further is a logical step in bringing the MMIF into line.

If your suggestion can be implemented without further losses to the MMIF, it has my support but I cannot find any empirical evidence that MMIF losses will decrease if PLFs are increased.

Further it is highly unlikely that Congress would sit idly by and allow changes to the HECM program that will cause the entire MMIF to go negative. But mine is not the last word on this subject.

Re: How the West Was Won: Reverse Mortgages’ Left Coast Dominance

James_E_Veale_CPA_MBT — Tue, 17 Jul 2018 03:46:58 -0000

Ms. Callahan,

Endorsement volume in the industry is very, very misunderstood. For example, you write: "... between the first quarters of 2017 and 2018, despite overall negative trends for the industry." Even though that is the conventional wisdom in the industry, facts speak otherwise.

The national endorsement count for the first quarter of 2017 was 14,454 but for the first quarter of 2018, the count was HIGHER at 15,793. Or look at the trailing 12 months ended 3/31/2017 with 50,154 endorsements BUT for the trailing 12 months ended 3/31/2018, the endorsement total was substantially HIGHER at 58,325. So where is this negative trend when it comes to endorsements for the first quarter of 2017 versus the first quarter of 2018? Not what is expected.

What most people do not understand is that the demand of about 120 days ago is reflected in endorsements. More current demand is reflected in case number assignments. Case number assignments for the first quarter of 2017 totaled 19,542 but those for the first quarter of 2018 were substantially lower at just 12,711. For the trailing 12 months ended 3/31/2017 case number assignments were 80,854 but for the trailing 12 months ended 3/31/2018 total case number assignments were HIGHER at 80,990. So among the four sets of variables looked at, the ONLY set of variables that show a loss was the case number assignments for the first quarters of 2017 and 2018. So by March 31, 2018, no clear patter had developed for the current fiscal or calendar year.

What might be surprising to many is that fiscal 2018 may end with the current pattern of secular stagnation intact. The ending amount could be between 46,700 and 51,300. If total endorsements for the three months ended September 30, 2018 exceed 9,490, the current pattern of peak to valley secular stagnation will no longer be downward sloping. If that total is greater than 15,854, the peak to valley trend will also end; however, the total case number assignments for March, April, and May 2018 is only 13,529 so exceeding 15,854 endorsements during the next three months is extremely doubtful. Just to get to 9,490 endorsements for the three months ended September 30, 2018 will require a higher conversion rate of 70.11% which is significantly higher than currently anticipated for that three month period.

Based solely on the current trend of secular stagnation, fiscal 2018 should be a valley with total endorsements a few thousand endorsements lower than the last valley of fiscal 2016 (downward sloping). Yet endorsements for this fiscal year should end stronger than the current pattern of secular stagnation indicates but most likely not enough to even end any one of the three descriptors for the current trend. The endorsement count for calendar year 2018 should be materially lower than the endorsement count for fiscal year 2018.

How well fiscal 2019 fares is strongly dependent on whether we see changes that will materially impact the endorsement counts for next year. If no FHA changes are made at the end of this fiscal year to PLFs, one should expect the end of secular stagnation due to the return of substantial loss. Again without FHA changes, the first few years of the next decade could see a return of stagnation but most likely upward sloping stagnation but not necessarily peak to valley.

Odds are based on initial comments from Commissioner Montgomery, the chance for change that negatively impacts HECM demand seems lower than before he took office. Unless change is made that improves demand, one can expect fiscal year and calendar year 2019 to end with lower total endorsements than total endorsements for fiscal 2018. Let us hope for something better than the endorsement projections contained in this comment. Even though conservative, my projections are historically too optimistic with the exception of fiscal 2018 where it now looks like my projection will end up being about 4 to 5% too low.