Thanks, Jim, for posting this item and explaining that we often choose to deal with issues quietly behind the scenes. My grandmother taught me long ago that, “you catch more flies with honey, than you do with a swatter.”

When we are engaged in negotiations with various policy makers, it is generally my preference to work quietly and give those who are trying to help us the room they need to maneuver.

Also, when some members of the industry launch their own “grass roots” efforts, since many have no idea where their own elected representatives stand on FHA and other housing issues, they often end up sending letters and making calls to members of Congress who are philosophically opposed to government programs, FHA, etc., giving those detractors the ammunition they are looking for to take pot shots at the HECM program or other bills providing support for HUD

An example would be right now, during the appropriations debate, where I have seen reverse mortgage originators contact some of the most fiscally conservative, anti-government program members of Congress urging them to support the approximately $800 billion in credit subsidy for HECM. All that does is call their attention to this particular issue, providing an opportunity for them to grandstand against it and amplify the issue, while our allies are quietly trying to work it out.

On the appropriations issue, the White House initially requested the $800 million in its budget request. Not a bad place to have support. Next, the House, HUD appropriations subcommittee concurred and reported a bill with the subsidy included. Then, it went to the full HUD appropriations subcommittee in the House, where the ranking minority member, Congressman Tom Latham, a Republican from Iowa balked and said why spend the money, if HUD could simply adjust the program to eliminate the need for credit subsidy?

Latham, as far as I have seen, has never been actively engaged in HECM-related issues before. But, nevertheless, someone brought it to his attention and he chose to take on this issue, insisting that the House bill call for HUD to adjust the principal limit factors so the program won't require subsidy.

AARP is quite upset about this outcome and now they're working vigorously to try to turn it around when the Senate takes up the HUD appropriations bill this week. They are the right folks to be out front on this issue, because it will gain more traction if it is viewed as being about the need and benefit of HECM for senior homeowners, than if it is perceived as merely an attempt by the industry to protect its turf.

All in all, there is a lot of behind the scenes activity on this issue, but there is no value — and much downside risk — to airing it publicly. And, as Jim Veale has pointed out, I often find it a far more expedient strategy to refrain from speaking publicly about what we are doing while we are in the midst of doing it.

Finally, everyone in the business should understand that the appropriations issue will not be going away — even if AARP prevails in getting the credit subsidy appropriated for FY 2010. Historically, the HECM program's “numbers” have been predicated on higher home price appreciation assumptions than anyone really believes we'll be experiencing in the foreseeable future. That means adjustments will be required.

Adjustments can come in a number of ways. HUD can raise MIPs. It can lower principal limit factors. It can make other adjustments, like capping principal limit factors so that they only go up til a certain age (75?) and are not any larger for older borrowers. It can not allow principal limit factors to grow if interest rates are below a certain level (6.5%?). There are many options for adjustments. Or, it can continually look to Congress to appropriate more funds for credit subsidy for the program.

However, that last option — continually looking for credit subsidy — shifts the program from being a self-sustaining insurance program to sort of a social welfare program that requires the taxpayers to fund its shortfalls. Would that really be in the program's best interest in the long run? Or should it absorb some modifications so it can carry on as a self-sustaining program long into the future?

I am not advocating any particular route here. I am just trying to explain why these issues are complex and require more thoughtful reflection.

Mr. Neumeyer-

I know that this is a hard fact to accept, but past years have nothing to do with next year, which is what this budget debate is about, for a variety of reasons.

First of all, we don't really know how profitable earlier years were. They were all “scored” in their respective years with assumptions that might actually have been wrong. For instances any HECMs made in FY 06, 07 or 08, when property values were peaking and interest rates were low might very well prove to generate losses to the fund in the end, partcularly if they were made when values topped out and are terminated while values remain low.

Secondly, the number of loans made in those early years — the loans that should have performed well — is a much smaller number of loans than the volume of loans made during the “go-go” years of 06, 07 & 08.

Thirdly, until last year, HECM was included in the FHA General Insurance Fund, which included all programs other than the basic single-family 203(b) mortgage program. Now, we're in the MMI, the Mutual Mortgage Insurance fund, along with 203(b) forward mortgages. The General Fund included multifamily loans, hospital and nursing home loans, condominium loans, etc. While HECM itself might have been cash positive in any given year, the accounting was done on a “fund level” basis and the General Insurance Fund always required subsidy overall. In effect, HECM subsidized the other programs in that fund to some extent. That's how that fund is structured; there's nothing to be done about that. Last year, HECM was moved from the General Insurance Fund to the MMI. In the MMI, each program has a subsidy rate associated with it, so the fact that the forward mortgage program might make money doesn't allow for it to subsidize HECM under the MMI.

On the surface, this might all seem silly, but there are deep historical reasons for why these things are done the way they are, far too detailed to discuss here.

We do discuss these types of federal budget issues at NRMLA meetings, so if anyone is interested in really understanding them, we encourage you to attend our conferences. OMB and CBO, as well as Congressional appropriations staff were all at our recent Policy Conference, helping those who attended gain some insight.

Peter,

Thank you, sincerely, for all of your efforts on this critical issue but at the same time, you are sending NRMLA members mixed messages. On the one hand, you have regularly encouraged the members of NRMLA to maintain contact with their Congressional representatives. Now you are “mildly” criticizing some member(s) for doing what you have asked of them.

I suggest that NRMLA do a better job in advising its members when you want them to get involved, and when you prefer that they steer clear of what is a “sensitive” issue. As a member of NRMLA, I sure would have appreciated a heads-up.

reveresemanic

As a member of NRMLA I have always found Peter and company incredibly responsive to an email asking them to comment on a letter, phone call, email, etc. I wanted to sending to let's say Fortune Magazine. Peter helped me avoid walking into that lions den just hours ago. They can't keep us all in the loop every step of the way. Before you contact an outside entity contact NRMLA for feedback, you'll get it. I also learned that being a NRMLA Member and attending a meeting regularly is an awesome way to stay informed on what they are doing.