Page 381 - 2019 6th AFIS & ASMMA

Lastly, let's compare with the factors across time. Before the 2009,
75-year-old borrower at seven percent interest rate environment can
borrow 60 percent of the house value. That amount decreased to
54.8percent immediately after the fund transfer to the MMI fund. So
that reflects the requirement to be self-sustained and not to lose money
or be subsidized. Then that factor keeps on dropping, and by today the
factor is only about 40 percent. So within the last ten years, there was a
20 points drop; it's a one-third decrease in the amount that the senior
citizen can receive from this reverse loan. So the question I want to put
here is whether this is desirable from the government's perspective.
Should the program be taking care of the senior and try to make them to
receive as much as they could on a fair basis? Or do we just need to make
sure that we don't tap into taxpayer dollars and charge the borrower for
those extra costs? Session III

When we try to derive the principal limit factor using the red line, it's
based on the private lending required rate of return. A very important
feature in the HECM program is that by the time the loan balance
reached the original home value, the lender will assign the loan to FHA.
So starting from that point going forward, basically the HECM has
become a director lending. Once FHA purchases the loan out of the
lender and keeps in FHA's portfolio, the government becomes the lender
and it becomes a direct lending program. So we can just see before the
green line, it's a guarantee program, and after the green line, it becomes
direct lending. The difference is; what's the required rate of return for
this program to work? We see before the green line, because it's a private
lending, the lender needs a higher rate of return. After that, it's FHA
lending, so they only need to earn the Treasury rate of return, as their
Corresponding to that, the Congressional Budget Office, the US cost of capital. So that will put additional cushion to the potential risk
Congress, did research and by the end of last year, they published four when the balance becomes more than your house value.
different recommendations of how to change the HECM program. The
first one is to convert the program into a direct lending. That's exactly
what the audience asked in the second question earlier. So what's the
thinking behind that?

382 2019 6th AFIS & ASMMA Annual Meeting 383