GAAP Requires Private Reverse Mortgages Use Mark-to-Fair Value Accounting

LARKSPUR, Calif., Feb. 21, 2019 /PRNewswire/ — A seldom acknowledged downside of private reverse mortgages is the GAAP accounting requirement to mark contracts to fair value. Reverse mortgages are level-3 assets: the value is dependent upon an “unknowable” future event, moveout or death of the homeowners. This is a new underwriting element not required for HECMs which are valued at cost under a GAAP rule exemption based upon their federal government guaranty. Private reverse mortgages, without the exemption and ability to predict homeowner life expectancy/moveout, must use a higher discount rate to net present value (NPV) the portfolio’s future income ...

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