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HECM loans are attracting the wrong crowd

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Editor's note: This is the first of a three-part series. The recent actuarial review of the financial status of FHA's home equity conversion mortgage (HECM) insurance fund revealing a deficit of $2.8 billion has generated considerable attention in Congress and elsewhere.Some commentators have suggested that the deficit was a reason for curtailing the program. This article is directed to the question of what the reaction to the actuarial report ought to be, and to the broader question of what needs to be fixed in the HECM program. The actuarial report Basing policy changes on the actuarial report would be a terrible mistake. This is not because the report is poorly done. On the contrary, it is very well done, and one of its strengths is the documentation of the very large margin of error in that negative $2.8 billion figure. Consider: Estimates of fund value depend on forecasts of property values and interest rates as far as 38 years into the future. These for...