Reverse Mortgages - The Next Taxpayers Bailout? Ginnie Mae?

[WhiskeyGirl]

Are reverse mortages the next taxpayer funded bailout?

What exactly triggers a bailout by the FDIC?

What prospects and challenges do you see for RMBS after the Great Recession of 2008-2009?
The prospects are very encouraging. Ginnie Mae’s HMBS program has made a significant difference in changing investors’ attitude toward the reverse mortgages. Given the massive flight to quality we have seen over the past few years, any product with government guarantee is going to be seen as attractive to many investors. As a result, investors are much more open to discussing the product with us.

When you factor in the zero risk [really?] weighting of a Ginnie Mae HMBS with the favorable pre-payment characteristics of HECMs and HMBS structure, it is not surprising that interest in reverse mortgages as a new asset class has grown significantly in the past twelve months.

http://nationalmortgageprofessional.com/news15687/hecm-20-series-reverse-quarterback-wall-street

Ginnie Mae, the uglier bigger sister of Freddie and Fannie?

[WhiskeyGirl]

HUD Secretary Requests $41.6 Billion 2011 Budget. Five Goals in Focus

The Secretary called the budget "bold," saying that it will "enable HUD programs to: house over 2.4 million families in public and assisted housing (over 58 percent elderly or disabled); provide tenant based vouchers to more than 2.1 million households (over 47 percent elderly or disabled), an increase of 28,000 over 2009; more than double the annual rate at which HUD assistance creates new permanent supportive housing for the homeless; and create and retain over 112,000 jobs through HUD's housing and economic development investments in communities across the country.

In total, by the end of fiscal year 2011, HUD expects its direct housing assistance programs to reach nearly 5.5 million households, over 200,000 more than at the end of fiscal year 2009.

The Secretary said that the circumstances the country found itself in one year earlier left his department with little choice other than to take the proposed budget and programs "as is" in order to pump assistance quickly into the economy. With HUDs programs now stabilized, the administration will move toward transforming housing and community development programs and the infrastructure that oversees them into entities that are more streamlined, efficient, and accountable.

The budget is a major step in that direction, he said, and specifically it seeks to achieve five goals.

Goal 1: Strengthen the Nation's Housing Market to Bolster the Economy and Protect Consumers.

Housing, he said, plays such a central role in the U.S. economy that it is incumbent on federal agencies to rethink and restructure programs and policies to support housing as a stable component of the economy rather than as a vehicle for over-exuberant and risky investment.

He cited a number of ways in which HUD plans to accomplish this goal, including the changes previously announced to FHA including higher FICO scores and raising premiums and continuation of the Home Equity Conversion Mortgage (reverse mortgages) for senior citizens.

The department will continue to provide several programs for homeowners in distress including preventive refinancing and various loss mitigation efforts, fighting mortgage fraud, and providing housing counseling assistance.

Goal 2: Meet the Need for Quality Affordable Rental Homes

The housing market is very stressed with vacancy rates on the rise and homes moving from owner occupied to rentals. Spreads between asking and effective rents are the largest in the last four years but gains from lower rents are being offset by renters' lower incomes because of un-or under-employment. 8.7 million renter households paid 50% or more of their income on housing in 2007 and over 654,000 are homeless on any given night. To help lower these figures the FY 2011 budget includes $1 billion to capitalize the National Housing Trust Fund to increase development of affordable housing and an increase of over $2.2 billion from 2010 figures for core rental housing programs such as Tenant-based and Project Based Rental Assistance Programs and the public housing Operating Fund. In addition to continued funding, the Secretary pledged to work to streamline and simplify the programs so as to make them less costly to operate and easier to use at the local level and to shift the funding structure to one that leverages capital from other than federal sources.

Goal 3: Utilize Housing as a Platform for Improving Quality of Life

Absent a safe, affordable place to live, it is next to impossible to achieve good health, positive educational outcomes, or reach one's full economic potential. At the same time, stable housing provides an ideal launching pad for the delivery of healthcare and other social services focused on improving life outcomes for individuals and families. Capitalizing on these insights, HUD is launching efforts to connect housing to services that improve the quality of life for people and communities. The fiscal year 2011 budget proposes to connect formerly homeless tenants of HUD-housing to mainstream supportive services programs.

Goal 4: Build Inclusive and Sustainable communities free from Discrimination

The Department's approach to this objective is informed by the Administration's government-wide review of "place-based" policies. The Department is renewing our focus on place with the result that that proposed budget allows HUD to better nurture sustainable, inclusive neighborhoods and communities. To this end we will look at making communities sustainable for the long run including improving energy efficiency and taking advantage of transit-oriented development and other "locational" efficiencies. There will also be an emphasis on creating places that effectively connect people to jobs, quality schools and other amenities rather than sticking HUD-assisted families in neighborhoods of concentrated poverty.

Goal 5: Transform the Way HUD Does Business

The Secretary said that the 2001 Budget makes the following vital reforms:

(a) Develops a basic data infrastructure and delivers on Presidential research and evaluation priorities.
(b) Develops and maintains the Department's existing technology infrastructure.
(c) Provides flexibility and resources needed to fuel agency transformation.

read more - http://www.mortgagenewsdaily.com/02232010_hud_secretary_proposes_budget.asp

This is an interesting article and this site seems to have lots of news.

[WhiskeyGirl]

"Not only is FHA ensuring the availability of financing for responsible first time home purchasers, it is also helping elderly homeowners borrow money against the equity of their homes through the Home Equity Conversion Mortgage (HECM). This program has grown steadily in recent years, to a volume of $30.2 billion in FY 2009."

http://portal.hud.gov/portal/page/portal/HUD/press/testimonies/2010/2010-02-23

How does a Home Equity Conversion Mortgage  'reverse mortgage' default? 

For some reason, OneWest bank, which is involved with the Indymac mortgage bailout, is related to Financial Freedom which is the number one seller of reverse mortgages?

How does a reverse mortgage default?

[WhiskeyGirl]

How does one default on a reverse mortgage?  Bank pays senior monthly.  How would a bank default and invoke the backup of the US taxpayer through GinnieMae?

Financial Freedom, is related to OneWest (Goldman/Soros) and is number 1 in these reverse mortgages.  Why would taxpayers ever need to backup a reverse mortgage?

Isn't the home the asset? 

When taxpayers on Main Street default, they get foreclosed.  No one backs up their ability to continue paying.

Why is it that GinnieMae backs up banks like Financial Freedom if they default in monthly payments to seniors? 

What am I missing here?

===

Of all the wholesale lenders, Reverseit experienced the most growth with 3,609 units.  The Tulsa, OK based lender’s wholesale business grew 241% in 2009.  Below is the list of the top 10 wholesale reverse mortgage lenders of 2009.

  Sponsor Name 2009 % Change
1 Financial Freedom 10,230  -45%
2 MetLife 10,130  215%
3 Bank of America 8,593  -1%
4 JB Nutter 6,621  -60%
5 Generation 4,076  206%
6 Genworth 3,651  164%
7 Urban Financial / Reverseit 3,609  241%
8 World Alliance Financial 3,268  -41%
9 Sun West 2,600  63%
10 Wells Fargo 1,844  204%

read more here - http://reversemortgagedaily.com/2010/01/31/wholesale-reverse-mortgage-volume-down-7-in-2009-financial-freedom-holds-on/

[WhiskeyGirl]

Jeff Lewis, senior managing director, Guggenheim Partners, told RMD in blunt terms: “We are clearly dealing with an FHA that does not like HECMs or brokers. They are cutting the PLFs [principal limit factors], raising the mortgage insurance premium, increasing capital requirements for brokers,” according to Lewis, who advised practitioners somewhat caustically, to “follow what [government regulators] do, not what they say!”

Responding, Vicki Bott, HUD’s deputy assistant secretary for single family housing, issued this statement to RMD: “These changes to FHA’s programs are intended to balance the need to manage risk while continuing to provide mortgage capital to underserved communities. It is absolutely imperative,” she continued, “that FHA continues to support the recovery of our nation’s housing market and in order to ensure the financial health of the insurance fund, we find it necessary to undertake these prudent measures.  Many of these changes will bring FHA into conformity with industry standards.”

read more here - http://reversemortgagedaily.com/2010/02/22/urgency-for-pr-campaign-increases-vote-scheduled-for-nrmla-event/

FHA doesn't understand reverse mortgages?  Hmmm...sound familiar?

What do these big reverse mortgage companies do? 

Borrow money from GinnieMae/FHA to make payments? 

Do they get one lump sum?  Monthly payments?  Is it possible they run off with the lump sum and leave taxpayers and seniors holding an empty bag?

Could someone like OneWest use money from Freedom Financial to buy banks like IndyMac?

Does anyone know how these reverse mortgages and GinnieMae/FHA work?

What is the money trail?

Anyone understand how this works?

[WhiskeyGirl]

Fed’s MBS Purchases Near 96%
02-22-2010 | Source: Total Securitization

The Federal Reserve Bank of New York purchased $11.3 billion in agency mortgage-backed securities in the week ended Feb. 17, bringing the total to more than $1.19 trillion, or 96% of the $1.25 trillion allocated for the program. Of the total, the Fed bought $4.47 billion from Freddie Mac, $3.97 billion from Fannie Mae and $2.85 billion from Ginnie Mae. Recently released minutes from a January meeting of the Federal Open Market Committee suggest that there is disagreement among members about how to end the program, which will expire March 31.

read more here - http://www.emii.com/Articles/2397691/Capital-Markets/Capital-Markets-Articles/Feds-MBS-Purchases-Near-96.aspx

Why would GinnieMae back up a reverse mortage?  Here are some thoughts, just in if you have some answers -

People live too long.  If folks live to long, is it possible that the investment will be a bad one?  Payments are more than the asset is worth?  So GinnieMae backs up the mortgage by making good if the recipient lives too long?

Mortgage Holder Miscalculates.  Mortgage holder miscalculate life expectancy and asset value, overpays for years, and is left paying out more than the asset is worth at the end of the mortgage.  Could miscalculation be on purpose?  Make a better offer than competitors?  Get more business?  Outbid/produce your rivals?

Asset wothless/diminished value  Older homes in neighborhood not in political favor.  Decline due to nation's priorities, value diminished.  GinnieMae steps in and pays bank?

Anyone know about this?  How this works?

What is the danger to taxpayers?  GinnieMae?  Federal Reserve?

[WhiskeyGirl]

FinCEN Forms Partnership to Combat Emerging Reverse Mortgage Fraud Says Director

“As many of you know, the HECM is an option that can give senior citizens greater financial security by providing access to some of the equity in their homes,” said Fries.  “Many seniors use this money to supplement Social Security, meet unexpected medical expenses, or make home improvements.”

However, as with other mortgage-related frauds, the agency is seeing inflated appraisals and property flipping.  Regulators are also seeing seniors duped into buying financial products not in their best interest and outright thefts of proceeds of the reverse mortgages.

“It is often difficult to discern that a fraud has even occurred until the victim is deceased, since a HECM loan is not due as long as the borrower is living in the house,” Freis said.

more here - http://reversemortgagedaily.com/2010/02/19/fincen-forms-partnership-to-combat-emerging-reverse-mortgage-fraud-says-director/

[WhiskeyGirl]

"The Detection and Deterrence of Mortgage Fraud Against Financial Institutions"

From page 39-

Reverse mortgage fraud is a scheme where legitimate or fictitious equity is stripped from the collateral. The lump-sum cash-out option will yield the greatest amount of loan proceeds, and likely will be where most fraud occurs. However, fraud may occur in other reverse mortgage loan products. For example, under the term program, where a borrower receives equal monthly payments for a fixed period of time, older borrowers will receive higher payments due to a shorter payment stream, creating a direct incentive to falsify age. Due to the structure of the HECMs, there are no warnings, such as past-due status or default, to raise suspicions, and possibly limit losses, as repayment is only required upon the borrower moving out of the property; upon death; default of property taxes or hazard insurance; or the property is in unreasonable disrepair.

Example

o Property title is transferred into the perpetrator’s name and quickly re-titled into a straw buyer’s name. A lump-sum cash-out reverse mortgage loan is obtained and is premised on collusion of an appraiser who provides an “as if” renovated appraised value to fraudulently increase the market value. The perpetrator also places fictitious liens on the property to divert loan proceeds to himself.

more here - http://www.ffiec.gov/exam/Mtg_Fraud_wp_Feb2010.pdf

GinnieMae, seems like another taxpayer blank check, how long before it needs a bailout?