Page 384 - 2019 6th AFIS & ASMMA
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The third issue is they suggested risk sharing with lender, basically
saying, “We are no longer interested in ensuring the whole balance, Session III
Sounds like a good idea, but when we do the research, we looked at so why don't you, lender, share the downside risk with us?” So in that
the FHA data; we actually found about for 60 percent of the loans, the case, basically what we can think of is; in this period, they separated
lender decided not to assign the loan to FHA, even when they were able the insurance versus direct lending by themselves, so we have the lower
to do that. So these lenders are knowingly decided not to sell their loan required rate of return when HUD becomes the lender. But if the lenders
to the FHA and willingly take some potential loss into the future. start to share all the risks, basically it will take away all the benefit of this
lower discount rate and which will put the cost of the program higher
In this case, if we see there is a risk in the house price appreciation than before. So that suggestion actually contradicts with the earlier two.
rate, the dark blue is the expected and two lines around it are the other The earlier two tried to avoid insurance but this one they want to push
potential risk. So if the house price goes as the expected trend, then the the insurance to the lender, so when governments are doing the policy
HUD will pay you for recovery up to about 27 years. If the house price analysis, they need to be careful to keep their policies consistent.
doesn't grow fast, then they can still earn the full return up to 21 years.
Compare that with sell the loan to FHA at 9 years, that means they can Well, because of the time limit, maybe I should just jump to the
at least earn additional ten years above market return without much risk. conclusion. So, the lesson we learned is, when we design the program, first
So that's something attractive to the lender and what makes them choose we need to define what's the purpose of program. Is it social welfare or is it
not to assign. And because of that, the lowering the trigger will probably for financial stability? And then, the second thing is to decide whether to
not do too much helping the program. provide the insurance or use direct lending as our tool. So, there's a lot of
different policies we can use, and the key point here is the principal limit;
how much the borrower can actually get through the program is the critical
thing. The purpose of having reverse mortgage is for the senior citizens. If
after everything we did, we find seniors are treated unfairly, that probably
defeats the whole purpose of the program. And okay, I guess I'll stop there.
386 2019 6th AFIS & ASMMA Annual Meeting 387
