Super Committee Cuts: Will They Help or Hurt the HECM Program?

What will happen to the HECM program if the deficit sharks-dubbed “Super Committee” don’t meet the $1.5 trillion in cuts they are tasked with completing by November 23?

Right now, it’s anybody’s guess, but some are saying the failure of the Super Committee to meet its cuts may not be such a bad thing.

The Committee, a 12-member bi-partisan group including House representatives and Senators, must come up with a proposal of $1.5 trillion in cuts over 10 years that will help control the budget deficit. The proposal, due November 23, would then be voted yea or nay by Congress without the opportunity to amend, obstruct or filibuster. That decision would be due by December 23.

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If the committee does not meet its goal, across-the-board cuts could be felt by all departments in government, including the Department of Housing and Urban Development. While cuts are not something the reverse mortgage industry is looking forward to facing, the uncertainty factor takes center stage.

“We are on such uncharted grounds for across-the-board cuts,” said Peter Bell, National Reverse Mortgage Lenders Association president and CEO. “It throws the whole country into a crazy situation. HUD has all these programs it administers, then would have to go back and implement the cuts for all programs,” Bell said. “Play that our across the whole government… it’s uncharted grounds.”

A HUD spokesman declined to comment when asked how the cuts would impact the HECM program.

“Given the large areas of the budget that are protected, these cuts will be on the order of 15% from the domestic discretionary portion of the budget. This would include most of the housing programs,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. “The good side is that relatively little of this hits in 2013. Most of the cuts are for later in the decade, but actually [run] much deeper. However, a lot will happen between now and then, so those cuts may never kick in.”

Additionally, the sensitive nature of housing could be a saving grace for FHA.

“For Republicans, it’s not in their interest to tank the housing markets either,” says David Min, associate director for financial markets policy for the Center for American Progress. “The political sense I get is nobody is trying to shut down FHA.”

Some believe that a flat cut would actually serve as the lesser of two evils when it comes to cuts.

“If they agree on a 2% cut across the board, that’s probably a good thing, versus the uncertainty associated with ‘We’re not going to do across the board cuts, we’re going to look program by program,'” says H. West Richards, executive director of the Coalition for Independent Seniors (CIS). “That makes all the various industries nervous.”

Even the defense industry is split on the issue, and defense stands to bear half of whatever across-the-board cuts are made, Richards says. Being able to implement a flat percentage cut could be simpler overall.

“It would be a nice, simple something that everyone could understand,” he says. “The alternative seems like a very complex endeavor.”

But a 2% cut doesn’t necessarily accomplish the desired end goal.

“Most sectors would do much better with a 2% cut, but that doesn’t get you $1.5 trillion in savings,” Baker says.

Whether the Super Committee will even come to agreement on the cuts to reach its $1.5 trillion goal is another issue.

“I think it is highly unlikely that they reach an agreement,” Baker says. “Most of the Republicans will not go along with any tax increases and are reluctant to support cuts to defense. There is no way that Democrats will support cuts to Medicare and Social Security without some real tax increases.”

Written by Elizabeth Ecker

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  • Why would Medicare or Social Security be touched before Medicaid?  It is strange that not even one person above even mentioned it despite its prominence in the budget.

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