“FHA assumed 4.2% annual, nationwide home price appreciation (HPA) in its reverse mortgage (HECM) lending model since the products inception in 1989, for more than 20 years, EVERY SINGLE YEAR, all the way through the financial crisis and much of the housing bust!!! And yet today, even with the benefit of hindsight and despite the massive HECM losses (billions of dollars) FHA incurred because of this assumption, they continue to assume 4% annual…

…nationwide HPA in their HECM model!!! And yet post-crisis, the private sector was blamed for not foreseeing the nationwide housing bubble and predicting the housing bust!!! What a crock of hypocrisy!!! Unlike FHA, private sector mortgage lenders (like IndyMac Bank) rapidly changed their lending assumptions/models and standards, avoiding billions in additional losses (for lenders and borrowers alike) that might have occurred in 2007-2010, before the housing recovery took hold.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Sent: Monday, March 9, 2015 3:53 PM
To: Michael Perry
Subject: RE: Hey…..

Mike – the current pricing model has a constant 4.00% annual HPA.

——– Original message ——–

From: Michael Perry

Date:03/09/2015 1:34 PM (GMT-08:00)


Subject: RE:

Thanks…really appreciate it. mp

Sent: Monday, March 9, 2015 1:30 PM
To: Michael Perry
Subject: RE: Hey…..

Mike – let me do some digging on that one. Yes, it was 4.2% pre-crisis. The pricing was set in 1989 (first year originating HECM’s) and had not been updated until +/- 2009.

From: Michael Perry [mailto:mperry@raubhil.com]
Sent: Monday, March 9, 2015 3:49 PM
Subject: RE: Hey….

I am really familiar with this document, as I did a study of this and the forward fund reports a few years ago.

I see home price appreciation discussion in the text and the appendix and the Moody’s forecast (to calculate the value of the fund), but I don’t see anywhere a discussion of what FHA uses in their reverse mortgage model to calculate maximum loan amount?

They used to use 4.2% pre-crisis? Do you know what they use today for new loans?

Sent: Monday, March 9, 2015 12:11 PM
To: Michael Perry
Subject: RE: Hey…..

Hi Mike – great to hear from you!

The original HECM model assumed a straight line 4.2% annual HPA. There were a lot of problems with the HECM insurance fund as the product LTV’s were mis-priced badly. As a result there are projected losses in the fund that triggered multiple revisions to the product pricing including the HPA assumptions. I have attached the latest actuarial report. While longer than you are probably interested in, the HPA discussions begin around page 20.

Hope this helps and let’s get together for coffee soon.

Good luck on your application!

Take care,

From: Michael Perry [mailto:mperry@raubhil.com]
Sent: Monday, March 9, 2015 2:34 PM
Subject: Hey…..

It’s been a long time and I hope you guys are well.

Quick question if you don’t mind.

As I recall, FHA’s HECM assumed 4% annual home price appreciation to calculate its maximum loan amount for a prospective borrower.

Post-crisis did they change this assumption? If so, to what?

Where can I find this on their website.

This is unrelated to the reverse mortgage biz….I am building a Home Buying Application and it would be one data point in regards to “future values” of home prices. Best, mike

Posted on March 9, 2015, in Postings. Bookmark the permalink. Leave a comment.

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