With the possibility of another steep principal limit reduciton, a group of reverse mortgage lenders have participated in the founding of the Coalition for Independent Seniors (CFIS).
Formed to address the lack of support for the HECM program in Washington, DC, CFIS aims to bring all the parties who appreciate what the HECM does for seniors together to educate and influence those policy, legislative, and regulatory organizations who hold the fate of the program in their hands.
”We have never done what we needed to do in Washington to find the champions our program will need this year,” said Jeff Lewis, Chairman of CFIS during an interview with RMD. Without these champions, the industry is facing another principal limit reduction which many believe could cripple the industry.
For FY 2011, the Office of Management and Budget (OMB) has requested an increase in the annual mortgage insurance premium from 0.50% to 1.25% and a further reduction in the principal limit factors of approximately one to five percent depending on the age of the borrower. Additionally, the OMB is requesting a $250 million subsidy for the HECM program.
If the subsidy request is not met, the US Department of Housing and Urban Development said it will be forced to reduce the principal limit factors by an additional 21%, resulting in a reduction of funds available to seniors by 30%. “Everyone can see the impact of the last principal limit reduction and this will be even more devastating” said Lewis. “This is a historic moment for the HECM program and we all need to mobilize and do our part.”
Even with the current marketplaces ability to lower upfront costs of the program, it doesn’t make up for the principal limit reductions said Lewis. “Proceeds are the most important issue to borrowers.” With the program as it stands, coalition members estimate 40% of current HECM borrowers would not be able qualify with the program due to the principal limit reductions.
The coalition also has issues with the OMB’s assumptions because they believe the reverse mortgage program doesn’t require the changes requested. The lack of transparency over the OMB’s assumptions are unclear and frustrating says Lewis. “We don’t believe that the program is a money loser.” CFIS isn’t alone either.
Last year, an independent study conducted by IBM on behalf of FHA found the economic value of the HECM program at the end of FY 2009 was $909 million. Indicating it had sufficient capital resources to meet the anticipated liabilities associated with the program.
For FY 2010, IBM estimated the economic value of the HECM program would be $1.875 billion without the 10% principal limit reduction. “As a result, with all other modeling assumptions held constant, the actual economic value of the FY 2010 book-of-business is expected to be greater than the estimate presented in this review,” said IBM.
While the coalition disagrees with the OMB’s assumptions, the closed process and lack of transparency make it impossible to fight. In the coming months, CFIS is focusing its attention on ensuring the appropriation committee members will approve the subsidy request because at this time it’s not clear anybody will says Lewis. Other industry leaders are voicing their concern about the future of the HECM program too.
Meg Burns, the former Director of Single Family Program Development at HUD admitted the program’s in a difficult place right now during an interview with the National Reverse Mortgage Lenders Association last week. Burns, who has always been one of the biggest advocates of the program said it’s much more difficult place now than in her entire time in government. “But I don’t think there’s anything left that I can do to fix that,” said Burns.
Lewis feels a bit different. During our interview he said the industry understands and sees the massive good the HECM product does for seniors everyday, but that message hasn’t been communicated to people in Washington. “We’ve never connected the wonderful experiences of our customers to those seniors’ representatives – so that they know how important our industry is to the well being of so many members of the fastest growing demographic in the US.”
To help, Lewis is asking the industry to act by encouraging customers to submit stories about how the program has improved their lives through the coalitions website. Using real stories of the transforming power of the program, the organization can show representatives like David Obey (D – WI), Chair of the House Committee on Appropriations, the enormous benefit the program provides to seniors who want to remain in their home and live independently. Lewis said we need to reach others on the committee including John Olver (D – MA) and Tom Latham (R-IA).
In addition, Senator Patty Murray (D-WA), who is the chair of the Senate subcommittee on the Transportation, Housing and Urban Development, and Related Agencies will play a crucial role in saving the HECM. “These are the people in Washington that can make a decision to change the future of our industry,” said Lewis.
“Up to this point, when the HECM program is being discussed during the budget process, we have not had champions in the room.” The coalition wants to change that and make sure when it’s being discussed people realize how many people the HECM is helping. “We plan on getting to many people in the House and Senate to find champions for a program that should have many champions.”