The likelihood of a reduction in the MIP (Mortgage Insurance Premium) upfront fee for FHA reverse mortgages become even more remote with a recent audit of the FHA’s insurance fund by Integrated Financial Engineering, Inc.
The FHA charges a 2% upfront insurance premium to insure a HECM reverse mortgage. This fee is often the largest closing cost in a reverse mortgage and many lenders believe that the charge is excessively high relative to the risk of loss that the FHA is taking on.
At the NRMLA conference in mid November, a team from HUD presented a very detailed analysis of how they model the underwriting risk of a HECM. The unspoken conclusion they gave was that the insurance premium is unlikely to be reduced in the foreseeable future.
Integrated Financial Engineering’s audit made the possibility even more remote when it concluded in it’s Sept. 30 audit that the economic value of the FHA’s insurance fund has declined 39% in the last year due to a massive increase in the number of troubled loans.
The FHA has emerged as a true lender of last resort in these troubled economic times with the FHA’s share of all mortgages originated in the third quarter of 2008 jumping to 26% versus 3% for all of 2007.
The implications for the reverse mortgage industry are clear: while reverse mortgages themselves are a low underwriting risk and are unlikely to contribute to declines in the value of the FHA’s insurance fund, if the FHA runs into financial hardship it may decide to increase the premium charged on the HECM.
Source: Wall Street Journal