When the The Transportation, Housing and Urban Development, and Related Agencies Appropriations Subcommittee meet on Thursday in the U.S. House of Representatives to deliberate the budget for HUD, the reverse mortgage industry will be paying close attention.
Included in the Obama Administration’s FY 2011 budget is a $250 million appropriation request to offset projected losses for the Federal Housing Administration’s reverse mortgage program. The request is in addition to lowering the principal limits one to five percent depending on the age of the borrower and increasing the annual mortgage insurance premium from 0.50% to 1.25%.
If congress does not provide the $250 million, FHA will be forced to reduce the amount of money available to seniors through the program by 21% according to testimony from Commissioner David Stevens earlier this year. During the testimony, Stevens urged members of Congress to provide the appropriation because seniors have been hit hard during the financial crisis due to increasing medical costs and less savings in various types of pension funds and retirement accounts. “The need for this type of program is greater now than it’s ever been,” he said.
Whether or not the Congress will provide the appropriation is unclear, but the industry has been working with members of the Appropriations Subcommittee to rally support for the program.
“We have been working feverishly with members of Congress and staffers from both sides of the aisle to build the case for funding the credit subsidy requested by President Obama for the HECM program,” said Peter Bell, President of the National Reverse Mortgage Lenders Association in and email to RMD. “We have also collaborated with AARP and other key advocacy organizations who are supporting both the funding and amendments giving HUD more flexibility in setting MIPs.”
If the appropriation is not provided, HUD has engineered a new two product solution that could reduce (possibly eliminate) the need for the $250 million. During a policy conference earlier this month, Colin Cushman, Director of Portfolio Analysis at HUD, outlined the possibility of offering borrowers a HECM similar to the one currently available in the marketplace and a HECM Lite. The Lite product would provide borrowers less money but would have lower costs than the traditional HECM.
FHA is currently working with the Office of Management and Budget to evaluate the two product solution but if rolling out the new changes isn’t possible by the start of the fiscal year, “a bridge appropriation, heightened premiums, and or reduced principal limit factors may be required to operate the HECM program,” said Cushman.
The last principal limit reductions have had a big impact on the industry and the number of seniors who have access to the product. As of May 2010, reverse mortgage volume is down 39% from the same period last year according to Reverse Market Insight. Another steep principal limit reduction will no doubt hurt production even more.
After the House Subcommittee markup, the bill then goes to the Full Committee markup, then Rules Committee and finally the House floor for vote. The process is repeated all over again in the Senate said NRMLA.