Shortfalls and Protocols in Reverse Mortgage Sector

If asked to name a key player in the federal government’s HECM program, the name Margaret “Meg” Burns no doubt would be at the top of most lists. In her capacity as director, Office of Single Family Program Development in the FHA, Burns often keynotes reverse conferences, as she did this month in San Diego at the MBA’s semi-annual event.

And, it was there that the director alerted industry players to FHA’s decision to reduce loan proceeds that seniors can receive from a HECM, by 10 percent.

Burns, who is generally acknowledged to be overwhelmed by mounting challenges and limited staff support – and who reportedly almost left the agency in the past year to join a senatorial staff – told MBA conference attendees that HUD was “preparing for all contingencies,” in the wake an estimated $800 million insurance shortfall, a result of declining house prices. “It makes the most sense to reduce the principal limit backwards,” she said in San Diego, adding: “We’ll be running those numbers in the next few weeks.”


Then, on the subject of oversight, Burns sounded apologetic, announcing that “a lot of you will hate some of the new [counseling] protocols” yet to come. Among them, she said, will be a requirement that counselors assess a consumer’s “comprehension”, including an assessment of whether there would be sufficient loan proceeds to pay long-term obligations, including taxes and property insurance premiums.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at

Join the Conversation (12)

see all

This is a professional community. Please use discretion when posting a comment.

  • I'm already prepared for the new counseling requirements. The only counselor within 25 miles of me does a complete financial analysis and recommends to the client as to what to do. He has told clients “you do not need a reverse mortgage” and “you should file bankruptcy.” My feeling was that the counselor's job was to make sure the borrower knew all aspects of the loan, including costs and proceeds.

  • Comprehension and financial feasibility sound like reasonable counseling protocols as long as the assessment is done in a manner that isn't too burdensome. If possible, financial feasibility needs to be based on the homeowner's sustainable cash flow, not loan proceeds.

  • these counselors are supposed to be offering alternatives, not giving opinions. O believe you could report this counselor for inappropriate actions.

  • When Meg Burns left HUD a few years ago (albeit for a short period of time), there was a huge hole left in the HUD building in the support of our HECM program. While I wish Meg all the best, my selfish side hopes that she doesn't leave HUD anytime soon. She is a very good friend to our industry and has a deep level of understanding of the nuances and challenges our industry is facing.

  • Why are tax and insurance such a major topic? How many and what percentage of HECMs are out of compliance as a result? The increasing popularity of closed end HECMs only seems to be potentially intensifying the situation.

    Does anyone have any statistics on delinquencies on taxes and insurance for HECM borrowers versus those for all homeowners over 62 years old? It seems those in RM management and servicing are the most involved and concerned but why isn’t this being brought to the forefront to all of us? Senator McCaskill has already brought it up. So why is it being hidden in the closet? Some have even called it “our family's little secret.”

    Counselors should have been addressing T & I cash requirements in counseling for years. The question is what qualifies counselors to be a decision maker in any impounding for T & I or set asides for that purpose? It seems we are handing more and more of the actual decisions into the hands of counselors. If the statistics warrant that level of concern, then so be it but no hard evidence has been carefully laid out to show why.

    There is no way counselor training gives the financial training that CFPs and others have been required to receive. Counselors do not receive the psychological training to address comprehension adequately. Yet counselors could potentially overrule both CFPs and psychologists. Like an IRS auditor, counselors need to perform initial and independent determinations and assessments but where is the appeals process? Power should not be totally vested in the marginally qualified without a means for appeal from their decisions. HUD should be addressing this issue in particular.

  • How can lowering the available amount of funds by 10% (reducing product attractiveness and utility) help with a $800,000,000 shortfall? HUD is short of money, which means they need to GET more money. To GET more money, they need to GET more “product” (HECM's) to fund (and maybe charge more premiums). This 10% reduction (reducing product attractiveness and utility) will surely result in fewer “products” sold and therefore less “revenue” to make up the $800M. shortage. in fact, I predict it increases budget shortfall. Who thought this up? Someone who has never run a business?

    • timReverser,

      The subsidy in question has absolutely nothing to do with cash needs for this fiscal year. It has to do with the cash needed to pay projected losses net of projected MIP revenues from the HECMs that are expected to be endorsed today and for the following 364 days (i.e., this fiscal year which ends September 30, 2010) excluding those that have a FHA Case Number dated before today. It is only the discounted net cash inflows and outflows from these HECMs and only these HECMs (hereafter referred to as “the applicable HECMs)” that are under consideration.

      The $798 million positive subsidy if approved by Congress and the President will work somewhat (but not exactly) like a servicing fee set aside. That cash will not be needed until at least several years after 2010, something like 2015 or even later. It can only be used to pay for losses emanating from the applicable HECMs endorsed during the fiscal year ending September 30, 2010.

      In the first few years after funding, the applicable HECMs should produce enormous net cash inflows, since few losses will be incurred in those early years following funding. But in later years as these loans terminate, it is expected that the effective appreciation rates will have been so low that significant losses will result. The additional funds that the subsidy will supply to pay these losses will not be needed for many years, if ever; however, the projected losses may be far too optimistic and the actual amount of losses much greater than predicted. In the latter case HUD will need to return to Congress to request the money needed to pay for the losses that exceed the cash available through the subsidy. The budget subsidy calculation is subject to the same flaws as any other projection.

      By reducing proceeds, the size of the expected (and actual) losses will be reduced substantially resulting in significantly lower amounts of cash needed from sources other than the MIP generated from the applicable HECMs to pay future losses. HUD has determined that a 10% reduction to Principal Limits for the applicable HECMs removes all need for subsidy. If Congress in Conference Committee provides the full subsidy, then the reduction to Principal Limits will go away for all HECMs that HUD identifies in its implementing Mortgagee Letter. But don’t expect much of a subsidy or so NRMLA predicts.

      Your statement and misunderstanding are not uncommon. It is very interesting to read some of the convoluted ideas that some industry leaders, who really should know how the budget works, present.

      • “effective appreciation rates” Who's estimating these?

        Tim Jacobs
        Open Mortgage
        18750 Crenshaw Blvd. A
        Torrance, CA 90504
        (800) 630-0650 ext.102

  • Mr. Jacobs,

    I wish I could tell you. It is not HUD. It may either be someone at OMB, CBO, or some third party that OMB relies on in making its estimates for the President's budget proposal.

  • I was under the impression that the average term of a HECM loan is 7 years. If this is true, I have never seen all of the equity reserves used up in 7 years, even with zero appreciation. So, I guess I just don't understand who is figuring that there will be a shortfall and that the money collected via the MIP both initially and every year wouldn't cover it.

  • I was under the impression that the average term of a HECM loan is 7 years. If this is true, I have never seen all of the equity reserves used up in 7 years, even with zero appreciation. So, I guess I just don’t understand who is figuring that there will be a shortfall and that the money collected via the MIP both initially and every year wouldn’t cover it.

string(96) ""

Share your opinion