Page 375 - 2019 6th AFIS & ASMMA

From the supply side, the lender wants the first thing: this is what we
learned when developing reverse mortgage in other countries; when we
talk to the lender, the first thing they push back is they cannot underwrite
anything without a definite termination date. And HECM, we talked
about the termination day is not defined and its contingent on when this
borrower dies or moves out of the housing. So that is something lenders
has been strongly resistant to. The second thing is when they are going
to lend money, they want a fair compensation to the risk that they are
taking. The risk involves how long this loan will last into the future and
how much we can recover from this loan at the maturity day. So at the
beginning, the US government found that this gap between these two
groups and their expectations cannot be aligned. So there is a failure
on the private market to resolve it by itself. That's why the government
stepped in and provided several features to make this market work.

The same situation actually faces the reverse mortgage, the HECM The first one is the it has to go through the FHA to ensure the full Session III
program. Since the start, the HECM has always been designed as an payment repayment of the unpaid balance, upon the determination of
insurance program. The government provided insurance to reach the the loan or upon the death of the loan. So that took care a lot of the risk
borrower and the lender on the market to form the reverse mortgage of the return involved. And the second one; they allow an option to the
market. So their mission is defined; they want to facilitate the liquidity lender. Whenever the unpaid balance of the loan has reached the initial
on the market, so that the borrower, if they need, they have a channel to house value or 98 percent of the initial house price at that point in time,
convert their equity in the house to become regular income. And from the lender can sell the mortgage to FHA at the fair unpaid balance. So
here we are dealing with two sides: demand and supply. in that case, it's indirectly established a definite termination date. At the
beginning we can estimate how long it would take to reach that point,
On the demand side, the borrowers want to secure the housing for life, and that becomes a semi-maturity day for the lender. And those two
they don't want sell because it's part of the equity and eventually someday make the whole market possible. The third, as Min Hwang just talked
they will be forced out of the housing. That's one demand. The second about, they also provided additional liquidity to the lender; the lender
one is once they decided to go with the reverse mortgage, it means that can securitize the HECM into the HMBS through Ginnie Mae, which
they actually don't care much about how to handle the remaining value provides further protection against the maturity risk.
of the HECM, if there is any, because they would be dead by then. So
capital gain or appreciation is not their interest. And their objective is try
just to see, given today's house I have, how much additional income can
I get from the lender? If one particular lender can give me the maximum
value, I will go with that lender. So that's their objective.

376 2019 6th AFIS & ASMMA Annual Meeting 377