FHA Mortgage Subsidies Unlikely as Congressional Leadership Changes

After receiving what President Barack Obama described as a “shellacking” in the mid term elections, additional support for the Federal Housing Administration’s reverse mortgage program could be harder to find with fewer Democrats in power.

At the National Reverse Mortgage Lenders Association event in New Orleans, FHA Commissioner David Stevens told RMD that while the HECM product is critically important, the agency was worried it could’ve lost the program facing a $250 million subsidy request from the Office of Management and Budget earlier this year.

“Without the subsidy from Congress, we were at risk of changing the principal limits enough that it would’ve made the program unusable for many in order to break even from a budget standpoint,” he said.

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Instead of requesting the subsidy, FHA developed the HECM Saver to offset the need for additional funds. However, unless the program becomes cash flow positive, it could be a challenging end of fiscal year 2011.

“I think it will be harder in future sessions to expect any subsidy, given the change in congress,” Stevens told RMD. “There is going to be more fiscally conservative views coming out and we need to be very careful making sure that the HECM Saver gets up and running.”

It’s not just the HECM product, he worries about all of FHA’s programs, “we don’t need to be asking for a government subsidy for any mortgage product.”

Peter Bell, President of the NRMLA agreed with the Commissioner’s statements. ‘We’re going to see a very significant change in the leadership,” he said.

With Republicans taking control of the House of Representatives, Congressman Spencer Bachus (R-AL) is in position to become Chairman of the House Financial Services Committee, replacing Congressman Barney Frank (D-MA), someone who understood the reverse mortgage product very well.

“They have an attitude that the government should be smaller and do fewer things and that could mean shrinking FHA,” said Bell.

As an example, he said there is already discussions in Congress to let the higher HECM loan limit expire at the end of the fiscal year. “I’ve been put on notice that there is a sentiment to not continue it, so there is a chance it could roll back to $417,000 unless we can convince them otherwise,” he said.

In order to do so, the association hopes to point to a lot of cases where the higher loan limit helped people save their homes from foreclosure. “It’s going to be a challenge for us going forward,” he said.

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  • To be clear it was not Republicans who refused to give the program any subsidy last fiscal year. It was a House with a Democratic majority and a 60 seat Democratic majority in the Senate where Senators McCaskill and Kohl reside. This fiscal year it was a 59 seat Democratic majority in the Senate which refused to act on the HUD budget before October 1. It is a Democratic OMB which attacked the HUD projections for the HECM program and for the second straight time in the history of the program forced HUD to abandon the approach approved by a Democratic Congress under a Republican OMB to select reasonable home appreciation rates. With friends like the Democrats in the 111th Congress and in OMB….
    We need to work with the White House and OMB. If the reasonableness of a higher home appreciation rate can be achieved there, the need for a subsidy can be lessened or eliminated. Then again we have the Saver and it is up to our industry to stop its own complacency and look at the Saver for it is. If our leadership cannot get over their grieving over the Democratic loss of the House, we need new leadership.
    Some are talking about their secret sauce in how to market Savers. Then there was the nonsense about how the counseling stuff was right sided brain to put down “financial types.” Forget it. We need unity in pursuing the development of the Saver as an industry.
    Last month on RMD we had originators running to protect a leader who was upbraided for his complacent remarks about the Saver. Since then he has written a very good article on the subject. I hope some will continue challenging our leadership to be leaders when it comes to the Saver.
    NRMLA needs to focus like a laser on the Saver at their conventions. We need whole sessions on nothing but how to market this product. We need financial types to analyze it and tell us how it differs from Standards and marketers to define the demographics and individuals who need this product. We need competent marketers to test different methods and report their results openly. David Peskin has provided that kind of leadership in the past and I hope to see him do it again.
    The Saver has been with us for over one-tenth of this new fiscal year; that is right, there is now less than 89% of the current fiscal year to go with year-end holidays upon us. By January 18th, when we will return to full swing over 30% of the fiscal year will be gone. With a four month lag for endorsements, this fiscal year will have less than eight months of Saver endorsements with much of that period (through January 18th) — gone.
    How are we progressing? I hope John Lunde reports on our monthly progress and will let us know how we are doing in relation to where we need to be. For years our industry cried out for a lower upfront MIP cost HECM. Now that we have it, what will we do with it? It could be the factor that lifts up our industry. But one thing is clear — we need to get busy.
    I guess I am not the most popular guy around about now. So I will stop.

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