Withstanding the deepest recession since the Great Depression is the key cause of the Federal Housing Administration’s reverse mortgage troubles, a panel of policy experts reported before members of the House Financial Services Committee Wednesday.
But those problems can be solved through current policy decisions as well as upcoming policy changes pending the approval of Congress, they said, stressing the need for FHA to garner more authority from Congress to make the program changes it needs in order to be sustainable.
“The reverse mortgage program is unique program for seniors,” said David Stevens, Mortgage Bankers Association president and CEO, and former FHA commissioner. “The only way that program works is if home prices are appreciating or if you keep the draw low enough to compensate for flat home prices.”
The recent changes that have been made under the leadership of Assistant Secretary for Housing Carol Galante are prudent, Stevens said, in curtailing the full draw fixed rate reverse mortgage in exchange for the Saver product.
“Previously, it allowed too much of a draw,” Stevens said referencing losses projected under the Home Equity Conversion Mortgage program in the most recent actuarial review of FHA’s insurance fund. “That’s what caused this disproportionate outcome.”
The panel was asked by former House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala.) about the program’s sustainability and whether it should be continued.
FHA could have addressed problems sooner, had it had the authority and flexibility needed, panelists said.
“If at the time officials at FHA in the Bush Administration or Obama Administration had been able to swiftly implement the changes they wanted, we would have a positive fund today,” said Sarah Rosen Wartell, president of the Urban Institute. ”We need to create the ability for them to act more swiftly. The HECM program is a perfect example.”
In written testimony, Wartell specified a recommended addition to the Fiscal Solvency Act—yet to be passed by Congress—which seeks FHA authority to mange the HECM program by mortgagee letter.
“This change would enable FHA to better respond to the market by implementing structural changes to programs with immediate effect,” the testimony states. “These changes would eventually be codified through the rulemaking process, and lenders would be able to suggest further modifications through notice and comment periods.”
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