Appropriations Bill Set to Change FHA Reverse Mortgage Program

As politicians head back to Washington to vote on healthcare and a range of other issues, the reverse mortgage industry waits to see what the Home Equity Conversion Mortgage (HECM) will look like starting in FY 2010.

The House passed its appropriation bill in August and requires that HUD operate the HECM program at a net zero subsidy rate, eliminating the need for the $798 million subsidy requested by HUD earlier this year.  In order to accomplish that, the House bill includes changes which would lower the principal limits for the program by an estimated 10%.  The bill also extends the $625,500 lending limit for FY 2010.

The Senate’s appropriation bill provides $288 million to cover part of the shortfall and requires HUD to reduce the principal limit by 5% and create an additional 2.66% subsidy on all new guaranteed loan commitments exceeding the estimated total of $30 billion generated in that fiscal year.  It also includes an amendment which terminates the $625,500 lending limit on January 1, 2010, bringing it back to $417,000.

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About the only thing that the two bills share in regards to reverse mortgages are that both extend the suspension of the cap on the number of HECMs that can be endorsed through September 30, 2010.  So where do we go from here?

With politicians back from their August recess, the Senate still needs to vote on its version of the appropriations bill.  Assuming that it’s passed, both versions of the bill go to a Conference Committee where members iron out the differences and return a compromised version to both the House and Senate for final approval.

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  • In his response to the CR article, Mr. Marty Bell claimed there is a dispute about the dollar amount of the subsidy request. It would be interesting to know if the dispute is a meaningless fight between government agencies or a dispute that will have a meaningful carryover into the legislative process. After requests made in the NRMLA Policy Conference it was surprising to read Marty make this statement; however, the statement is true, there is a dispute and it should be aired in Congress or in joint committee.

    Because of the need for private negotiations, NRMLA must have some latitude in not communicating what their present strategy actually might be. Each bill has its positives and negatives. Here is wishing Mr. Peter Bell the best in his attempt to have Congress consider an increase in the annual MIP rate charged monthly on the outstanding loan balance due rather than reducing principal limits. It would be great if the $625,500 is extended to September 30, 2010 or beyond.

  • I agree with James Veale. I also join James in wishing peter Bell the best of luck in offering the trade off of an increase in the MIP rather than reducing the principle limits.

    The reduction of the principle limits could not come at a worst time for our seniors, we can't let this happen.

    As far as the lending limit, it is great we have the extension of the $625,500 to January of 2010. It would be better if the extension was through September 30, 2010 as James suggested. However. we now face going back to a limit of $417,000 that was not sufficient enough to meet the need. We will also face the increasing need for the proprietary product. The proprietary product never filled the gap for homes in the $600,000 to $900,000 range and I doubt if it ever will. The LTV has to be set to low for the program to be marketable in the secondary.

    This is a problem that needs to be looked at in the coming months. We need to look for the solution to maintain the $625,500 lending limit. I think we all know their are solutions for it. Have a good day.

    John A. Smaldone

  • I think we all agree that a 10% reduction in the principal limit could not come at a worse time. The declines in home values have put many potential loans into question as more and more seniors see their proceeds barely meeting or falling short of covering existing loan payoffs.

    While a further increase in the MIP is no one's favorite solution, an increase in the monthly rate paid on the outstanding loan balance at least attempts to decrease the borrower's distaste for what is already a difficult pill for them to swallow.

  • Let me, a layman, understand. I pay a higher MIP, upfront, and die in two years. Uncle Sam, or HUD, or FHA. keeps the full MIP, and my heirs get the loan to pay off. Correct (in a simplistic way, Critic)?

    • The goal is to reduce the upfront MIP but increase the rate on the MIP monthly charge. Thus if someone died in two years the total MIP would probably be much lower after such a change than it would be now. However, after 5 years or so, it could be more. The idea is the longer the loan is outstanding, the greater the difference in the total MIP then over now, except in the early years. I hope that gives you a glimpse.

      (Sorry, Critic — Got to it first.)

      • I agree, I thought they were trying to INCREASE the upfront MIP: a monthly increase is much better (it still ain't great). (Yes, ain't-Critic).

  • This issue is about as siesmic as it gets for our industry. Our thoughts and prayers go with our valiant advocates at NRMLA.

    I suspect this issue calls for more than sitting on our hands and hoping for NRMLA to come through again.
    I have written to my two State Senators on this issue earlier this summer but maintain doubt that my voice is being heard.
    My question to all is this:
    How do we coordinate a strong message to our elected representatives (or better yet) to those key congress people that understand Reverse Mortgages to make a real impact?

    This matter calls for a letter from EVERY Reverse Mortgage Professional and advocate. Perhaps Mr. Veal could suggest the 3 or 4 key points to include in such a letter and finally some guidance on who should get the letters and exactly how best to transmit them.

    I was told once you have to fax letters to Congress to get them noticed. (I just don't know the best way to communicate to Congress and what the timing of such communication should be.)

    This is late inning-World Series action. Therefore the pitch must be accurate, timed correctly and effective. I encourage anyone who can suggest a way to conduct a straightforward, unified and intellegent message to Congress to post it here.

    After that EVERYONE who cares MUST ACT.

  • Mr. McKee is correct that everyone must act and I would like to suggest 3 ways. First, as an individual to every legislator who represents you in Washington. Please Mr. V or someone else at NRMLA should provide the “talking points” so we make a uniform message, but in a personal way. Using examples that can be confirmed does get attention – fax may not get through, emails are available through legislator websites, but either way, ALSO mail a letter refering to “as I said in my fax/email” with maybe more info.
    Second, through your NRMLA lobbyist. The more members, the more effective the lobby.
    Third, through AARP who has the greatest lobby. If you are not a senior (50 to them), you may not get enough attention so make certain to enlist anyone you know who is a senior to let AARP know that this is a good product that helps seniors and what issues could adversely affect them and senior their friends.

    Having been but a single, yet often strong voice when the issues have moved me over the past 25 years, I have learned that the same basic message from the different fronts have a combined greater affect on legislators. It takes a lot of ants to move a picnic basket but it can be done if we care enough and are industrious enough. Thanks NRMLA for being the conduit for our driving force.

  • I appreciate all of the confidence expressed regarding my capabilities in providing guidance in this regard; however, despite having many ideas, I am not an employee of NRMLA and this areas is outside of my areas of expertise.

    However, I believe it is in all of our interests to have either Mr. Peter Bell or Mrs. Liz Scholz (both of whom are long-time students and professionals in such matters) respond and provide the requested guidance.

  • If you want to look at the glass half-full vs. half-empty, one could argue that although the reduction of the principal limit may reduce what the senior homeowner can receive, if the fixed option is used it would reduce the mortgage balance which in turn would reduce the amount of both interest and MIP monthly premiums from increasing and eating away the equity at a faster pace.

    During this time, hopefully the market could turn better and the senior homeowner would have more equity in thier home for heirs or such.

    It doesn't sound like it is “just around the corner” however. I have heard as long as 7 years before values go back to where they were between 2003 & 2005.

    Anyhow, just food for thought.

  • My father has beentrying to get a reverse mortgage in time to pay a loan against his home that was due on Sept. 29. The process missed that timeframe and we took on an emergency, short-term loan until the paperwork could be completed. My dad found an article in today's (10/4/09) Washington Post, about the new, reduced FHA payout. This 10% reduction is about $50,000, and will be devastating to his finances and will result in nothing but the mortgage being paid. We have been in contact with our reverse mortgage lender as late as Oct. 2, and no mention of the horrific reduction was made.
    Is the reduction based on settlement date, FHA appraisal date, application date, or some other trigger? Are we already dead in the water and haven't been notified yet, or might we survive this change?

  • My father has beentrying to get a reverse mortgage in time to pay a loan against his home that was due on Sept. 29. The process missed that timeframe and we took on an emergency, short-term loan until the paperwork could be completed. My dad found an article in today’s (10/4/09) Washington Post, about the new, reduced FHA payout. This 10% reduction is about $50,000, and will be devastating to his finances and will result in nothing but the mortgage being paid. We have been in contact with our reverse mortgage lender as late as Oct. 2, and no mention of the horrific reduction was made. rnIs the reduction based on settlement date, FHA appraisal date, application date, or some other trigger? Are we already dead in the water and haven’t been notified yet, or might we survive this change?

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