Page 367 - 2019 6th AFIS & ASMMA

However, in the case of US HECM mortgage loans, that was not the
case, because cash flow can happen due to prepayment. The prepayment
can happen because of the borrower moving out of the house, or
borrower somehow decided to pay off the mortgage without moving out,
or borrower decides to refinance the loan, or the loan reached the 98
percent of the loan limit and taken over by the FHA. So there are a lot
of reasons or large factors that can determine the prepayment of reverse
mortgage loans. So with all these together, it turns out that the majority
of the HECM loans are actually paid off within seven-year periods. So
longevity risk is there, but it's pretty rare; most of the loans are pretty
quickly paid off. So currently, the industry actually has some prepayment
curve for the HECM loans called the HECM Prepayment Convention
Curve, which really looks like a PSA curve.

How the cash flow will look like? Well, the eventual cash flow is a Session III
main way of the payoff, so that's definite in a cash flow. It's very well
known that these is a considerable longevity risk involved, right? I'm
not sure if you have heard about the French lady who went into private
mortgage contract at the age of 80; she ended up living forty years more
and she passed away in age of 120. If this is the case when you're holding
the mortgage-backed security, you are not going to expect any cash flow
very soon; you are going to expect cash flow in 10, 20, or 30 years.

So I looked at the data on the HECM mortgage pools and this is what
I found; the red line gives you the remaining balance of the pool based
on the number of month passed. So the red line gives you the remaining
balance of the reverse mortgage pools, and the blue line gives you the
remaining balance of the forward mortgage pools.

368 2019 6th AFIS & ASMMA Annual Meeting 369