HUD Secretary Open to Raising HECM Premiums or Adjusting Loan to Values

image Housing and Urban Development Secretary Shaun Donovan said he was open to raising premiums or restricting eligibility for Federal Housing Administration reverse mortgages to avoid a $798 million taxpayer subsidy for the program.

"We do have options for changing the HECM program," Donovan told a Senate appropriations committee Thursday, referring to the FHA’s Home Equity Conversion Mortgage.

When the administration released its 2010 budget request last month, HUD requested a $798 million credit subsidy for the FHA’s reverse mortgage program for the first time.


According to Dow Jones Newswire, Sen. Patty Murray, D-Wash questioned Donovan on the subsidy and he conceded that HUD had other options to avoid the subsidy, such as raising borrower premiums or adjusting the program’s loan-to-value limit. Those changes would affect participation in the program, Donovan said.  He agreed to discuss the options with Murray after the hearing.

HUD cited falling home prices as the culprit prompting the request for the taxpayer subsidy. Donovan, in a call with reporters last month, said he was hesitant to raise premiums on seniors, many of whom have seen their savings ravaged by the financial crisis.

The agency projects that it will insure at least $30 billion in reverse mortgages under the program in 2010.

HUD Secretary Open To Raising Premiums For FHA Reverse Mortgages

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  • Boy, if ever the RM industry had a cause to fight for this is it. You have the Zickefoose case, and others, I think you could document to show how raising “premiums” would really screw seniors even more and cause an even higher foreclosure
    rate, the very thing the government says they want to stop. Every congressperson should be made aware of the facts to nip this dagger in the bud before it goes any further.
    Sorry, for all my lecturing, but I’ve seen how the insurance industry waged, and won, by using mail campaigns to stop certain new law proposals.

  • There are quite a few industry professionals that believe that it is mathematically impossible for the HECM Fund to be short. Maybe it’s time someone does the math? Does anyone think they could do a close workup of where we stand? I know it’s asking a lot, and probably impossible for a public person to get ahold of enough sensitive info to get an accurate answer, but it should be possible to get really close.

  • Maybe the program is short now, but for over twenty years the program has been a positive program for HUD!

    Less then ONE billion to help out the current landscape should be given, this is a government sponosered program.

    But then again, screwing the american people is want this current congress leaders and president like to do.

  • I’m not a politician but all Donovan said was he was willing to discuss it after the hearing with the senator.

    It seems like he is in favor of NOT increasing the premiums or lowering the LTVs, but it’s his job to educate people on what alternatives are available.

    Like I said, I’m not a politician, but I didn’t read it as this was definitely going to happen.

  • KidReverse,

    There are three accountings, three sets of projections, financial statements, an actuarial study on projected HECM losses, and one set of comparisons I would love to see.

    The first is an analysis of the HECM budget request. If I understand Mr. Peter Bell correctly, this should show the projected cash on hand as of the beginning of the fiscal and estimates of cash inflows and cash outflows by broad categories with related amounts. The net result should be the $798 million being requested. It is extremely doubtful if anything like contingent cash needs or “cushion” would be displayed but the other information would be very instructive and insightful.

    The next is a detailed projection of the number of HECMs that are expected to terminate in the fiscal year with estimated losses broken down by the fiscal year they were endorsed. Related to this would be a historical accounting of terminations broken down by year of endorsement with related losses along with the total revenues that each of those years has generated since endorsement including upfront MIP which I would hope would be shown as a separate number.

    It would also be good to see a history of the cash purchases of assigned HECMs and the cash generated from their terminations broken down year by year and also by year endorsed. Along with that it would be nice to see the projected purchases and terminations for the next fiscal year.

    Of course, financial statements by fiscal year for the HECM program would be nice along with any notes and related audit reports. If amounts in those financial statements were based in part or whole on reports provided to HUD, it would be nice to see those as well.

    The actuarial study would be an accountant’s delight. It would be projected as of September 30, 2008 or if possible, later. I would break down the losses by fiscal year endorsed and by fiscal year in which it would be expected to be paid. It would be completed by a competent, experienced, knowledgeable, and reputable actuarial or CPA firm with substantial experience in providing reasonably reliable studies.

    Finally, it would be nice to see the projected HECM budgets compared to actual for each fiscal year.

    But then “if wishes were horses, beggars would ride.”

    Back to work….

  • James,

    One area that I had not thought deeply about was the purchase and resale of the property between the assignment date and the rm’s maturity. Perhaps this is being mishandled or overlooked as an asset? That would be a rather large oversight, but then again, it does happen.

  • The reason for the request for credit subsidy at this time is that if you take the projected book of business for FY 2010 (the year beginning Oct. 1, 2009 and ending September 30, 2010) and calculate the inflows from MIPs and collections from that book of business over its life, then subtract the payout for insurance claims, the cost projection shows as -$798 million.

    The primary reason for this is that if you adjust the home price appreciation assumptions downward (to be negative) for the next year or so, then leave it flat for a few years after that, the program is projected to create that magnitude of loss on that book of business.

    There are a few way to deal with this. HUD could seek “credit subsidy” to cover that loss, as they have proposed in the administration’s initial budget proposal. Secretary Donovan has demonstrated an inclination to do just that — seek additional subsidy to keep the program as useful for seniors as possible in this economic environment.

    Alternatives are to raise the MIPs, so that more money comes in, eliminating the need for credit subsidy, or to reduce the principal limit factors, thus reducing FHA’s exposure in a time of falling property values.

    Fiscal conservatives, opponents of FHA, balanced budget advocates and others who believe the government should be less involved in the economy advocate eliminating federal loan guarantees to protect the government from shouldering such expenses. Or, at least rasing fees, like MIPs, so no subsidy is required.

    Social progressives accept the fact that there are times and places in which the government should step in and subsidize some areas of commerce to keep economic activity rolling. This is one of those times where such action clearly is needed, in my way of thinking, to keep tools such as HECM functioning smoothly.

    I applaud Secretary Donovan for trying to obtain the subsidy necessary to avoid lessening the value of HECMs to seniors. However, it is unclear if he will be able to maintain that stance throughout the Congressional budget process. There are some Congressional appropriators who are suggesting that HUD look at raising fees or reducing benefits, instead of seeking subsidy.

    The subsidy request, by the way, is not emanating from any surprises in overall HECM program performance. It is merely the result of a downward adjustment in home price appreciation assumptions from levels that were set many years ago in a different economic environment.

    The Office of Management & Budget, which is completely separate from HUD and part of the White House, determines home price appreciation assumptions which are then used government-wide for various programs, including HECM.

    OMB does not publish its assumptions. To do so, they fear, would drive markets. For instance, if OMB said publicly that they think home prices will fall further, would anyone buy a house today? Probably not, putting things into a greater tailspin.

    To put this into perspective, if a loan was made at the top of the market a few years ago and the principal limit was based upon the highest value back then and the lower interest rates of back then, but it now gets assigned to HUD or settled this year or next when values are seriously diminished, is it conceivable that FHA would take a hit? It most certainly is. It is that type of scenario that is driving this budget debate.

    Finally, both OMB, whose function in this issue is generally described above, and Congressional Budget Office, which “scores” all programs for Congress, will have representatives speaking at next week’s NRMLA policy conference. If you are concerned about this and want to truly understand the issue, so you can discuss it intelligently with your elected representatives, you should be there, too.

  • It seems like our government has invested a few dollars to fix the sub-prime mortgage mess, trying to sustain homeownership in general. Older retired homeowners are not eligible for the loan modification programs their tax dollars are supporting, while their home values have plummeted, reducing their qualifying amount on a reverse mortgage. Fannie Mae, in the midst of the financial meltdown, effectively increased the interest rate on reverse mortgages by over 2%. Is it possible to somehow convert 1% of that rate increase to MIP and triple the annual MIP being paid on reverse mortgages? What would that do to the budget assumptions?

  • Mr. Bell

    I don’t know you and I am not part of your organization. But having been a member of a couple of insurance industry organizations, I can appreciate your problems. When I first started at an insurance agency, the first thing they told me was I had to join the insurance trade org. and start studying for my Chartered Life Underwriter (CLU) designation. Why? Because they wanted everyone on board. That is why the insurance business has one of the best lobbies and power to deal with legislatures. When there was an attack on us, we were sent sample letters to send to our representatives. In other words we were in the fight, not just depending on the org. to do the battling for us. One thought, which may be helpful, is they let us know what positive things they were doing. I think this heads off a lot of grousing (which can never be eliminated, just minimized). Communication from org. to outsiders is important, but keeping the troops in the loop, as much as is possible is also a good idea. In any event, from what you said above, it sounds like you are doing what you can, and I agree the WSJ was overall a positive article.

  • dduck-
    Thanks for your comments. I would venture to say that most NRMLA members, particularly those that particpate in our conferences or on our committees, are generally better informed on the industry’s issues than their counterparts who choose not to participate. Our members receive an update report every other Monday on the association’s policy activities, a monthly email newsletter, a bi-monthly magazine and bulletins and memoranda on various topics as they arise. Our committees are actively working on many technical servicing issues, line of credit growth calculations, tax and insurance default policy, counseling, HECM program enhancements, restructuring MIPs, eliminating the cap on the number of HECMs HUD is authorized to insure, getting the 2009 maximum loan limit extended past 12/31/09, making sure we obtain the credit subsidy required to keep the program solvent and far more topics than I can list here.

    As in any case, an industry association is most effective if it is participated in broadly. NRMLA is proud to represent over 600 companies engaged in this business, including 95 of the top 100. There are many others who would benefit from participating (as evidenced by a lot of the misinformation posted on RMD), but some companies or individuals are unwilling to make the investment.

    It is interesting to observe how some companies or individuals view their investment in their industry trade group to be essential and cost-effective, while others are unwilling to spend the money (or time) required to be involved. Then, there are some players who figure that we will do what we are doing anyway, and that they will benefit no matter what, so why bother contributing?

    An association is not for everyone. It is for those who want to roll-up their sleeves, work alongside their industry peers, be supportive of the collective effort and build a brighter future for all involved. We don’t determine who gets involved in NRMLA; it is (as is any voluntary organization) a completely self-selected group.

  • Mr. Bell

    Thanks for the additional clarification and information, I hope non-members also read and absorb it, and possibly join your organization.
    When your in a rowboat filling with water, all must bail, not just the crew.

  • I guess I’m positive about the reporting because as a prospective RM user, I found the product to sound appealing and I think many other people would agree; maybe, I just have a blind spot for the negative. (Sometimes a cigar is just a cigar.)

    Except for the first paragraph, the rest is over my head.

  • Good evening,

    I have looked at everyone’s comments so far. Some very good points brought out, I commend all of you. Critic and Peter Bell, your points are well received. In this economic environment I don’t see any other way to safely handle this, except seek a credit subsidy to cover the loss, just as they have proposed it in the administration’s initial budget proposal.

    To raise the MIPs, so that more money would come to eliminating the need for a credit subsidy, or to reduce the principal limit factors. could be disastrous to the survival of the HECM program.

    Can you imagine a $400,000 home with a 2.5% MIP, $10,000 plus all the other costs? The senior will have no use for a Reverse Mortgage, they will have a Heart attack at the Table and die on us!

    The Reverse Mortgage industry can’t hang in there with all these changes that have been made and those proposed. We are going to destroy one the greatest programs that allow are senior home owners to improve their quality of life and maintain their dignity.

    We have alternatives, the program can survive, it needs to survive. We need to leave it alone for a while. We need to give it breathing room. To many changes to quick. Many changes being made by people who do not understand the industry. Too much corruption and too much politics. It is sad to see all this is happening right under our noses.

    Peter Bell said it well. He said, there are times and places in which the government should step in and subsidize some areas of commerce to keep economic activity rolling. This is one of those times where such action clearly is needed to keep tools such as the HECM functioning smoothly. Very well said sir, very well said.

    I wish you all a good night,

    John A. Smaldone

  • It appears to me that HUD is getting set to rid the FHA of the HECM by raising MIP and adjusting the principal factors to reduce the net principal limit thus defeating the purpose of the HECM – keeping seniors in their homes. The goal appears to be to transfer reverse mortgages to the banks & other financial sector predators who will perpetrate equity stripping on senior homeowners because there will be no federal oversight protecting seniors needing reverse mortgages to live their lives in dignity.

    HUD’s leadership seems to be ignoring the purpose for which it was created – to stabilize and revitalize communities; to reduce defaults and preserve neighborhoods. The financial sector, banks & others, which caused the ecomomic collapse, got bailed out and was made whole. But, when it comes to protecting seniors devastated by the economic collapse, HUD is taking a hard line against the senior homeowner. Senior homeowners do not have the luxury of time to recover from these losses. They need cash from the HECM to live out the rest of their lives in their homes.

    Congress should order OMB to do a net cost analysis on the MIP fund from inception. In one article, HUD wanted to ignore the accumulated MIP fund and just compare results of the inflows & outflows on an annual basis. In 2008 and 2009 it could be a net outflow, thus supporting the treasury’s justification for rate increases. However, if OMB finds that HUD raided the HECM fund for other purposes or made false statements regarding the MIP fund, the leadership should be censured and replaced.

    Owen McKeon
    Reverse Mortgage Counselor

  • Help needed. Who and where would be the best place to email/snailmail my (and hopefully others) comments, like Mr. McKeon’s, to oppose the potential MIP rate increase? I will, of course, cc my congresspeople.


  • In response to dduck asking who to write to, I would suggest that all just sit back and watch for the moment. Sec. Donovan has voiced his support for the program and indicated his desire to obtain the needed subsidy. At a Congressional hearing, he responded to a question by saying that they could look into alternatives such as raising MIPs or lowering principal limit factors, but he did not commit himself to doing that. he only siad they would look at it.

    My advice is to give him time to do his job. hen you start a letter writing campaign to congress, since so many participants in our business have no idea where their representatives stand on various issues, they end up writing to those who are opposed to the program (and perhaps FHA more broadly) simply giving them fuel for their arguments to do away with such programs. More harm may be done by writing to the wrong folks than by simply holding off for the moment.

  • If government would put back the 13.5 Billion dollars taken from the FHA fund then there would be no need for any subsidies. If current trends continue there will be 2,000,000 seniors kicked to the curb within 5 years.

  • If government would put back the 13.5 Billion dollars taken from the FHA fund then there would be no need for any subsidies. If current trends continue there will be 2,000,000 seniors kicked to the curb within 5 years.

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