Congress Debates Limit on Number of FHA Reverse Mortgages

The number of reverse mortgages that can be insured by the Federal Housing Administration remains in question after a congressional hearing this week.

A House Financial Services Committee markup this week brought the issue to light in discussing a potential amendment introduced by Rep. Michael Fitzpatrick (D-Pa.) that would eliminate the cap currently held on the number of reverse mortgages insured by the Federal Housing Administration. The amendment was withdrawn on Tuesday, leaving the future of the HECM cap still in question after being suspended through the current fiscal year.

When it launched in the late 1980s and early 1990s as a pilot program, the FHA’s reverse mortgage program was capped in the number of loans outstanding that could be insured by FHA.

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That number was set first at 2,500 in 1987 and was later raised in 2006 to 275,000—a number now far surpassed by the actual number of FHA-insured reverse mortgages outstanding, according to congressional testimony.

In discussing the amendment, the House Financial Services Committee members voiced the importance of FHA’s reverse mortgage program and a growing need for the products as a result of the current economic struggles Americans today face.

“In the current economic environment the need for financial relief for senior citizens continues to increase,” said Rep. Fitzpatrick. “For many Americans in their later stages of life home equity is their largest single asset. FHA HECM mortgage products give seniors the opportunity to tap the equity in their homes to improve their quality of life without taking on the burden of a monthly mortgage payment.”

Further, Fitzpatrick said, the cap has caused uncertainty in the market for borrowers and lenders of reverse mortgages and should be lifted.

“In essence, under economic conditions in which America’s seniors are experiencing unprecedented deterioration in retirement income and assets any interruption in the HECM program will cause even more harm to the senior community, and I believe it’s time to end the uncertainty and remove the cap that has essentially been ignored at this point for over half a decade,” he said.

The amendment also received support from Rep. Brad Sherman (D-Calif.), who cited the benefit of the reverse mortgage program to FHA.

“Over 730,000 have taken advantage of the program to date, which has generated, as I mentioned, significant revenue and an actual profit to FHA,” said Rep. Sherman of the amendment. “That’s why Congress has always increased the cap or suspended the cap.”

Currently the HECM program is operating under a suspension of the cap through a continuing resolution that expires September 30, 2012.

The congressmen have withdrawn the amendment to allow for more time for the committee to examine the issue, they said.

Written by Elizabeth Ecker

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  • The very fact that HECMs are as popular as they are is a reason the government should do away with the cap.  Imagine the future if the cap goes in place.  Crying seniors on the news saying that they lost their home because Congress capped the number of HECMs possible.  Worse for consumers, but not possibly for the industry, would be the industry then coming back with proprietary reverse mortgages to make up the difference.

    While not a huge fan of government regulation, I can see the necessity of it in certain areas, this is one of them.  And, it is not just because I am a counselor (I always worry when I feel the necessity to say this because it seems like I am doing little but protecting my own job), but it is because I can easily see how someone could be taken advantage of and if left to the public sector, then the danger will increase exponentially.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
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    [email protected] –work
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  • Everyone who sincerely is interested in resourcing this product as a financial tool appreciates the sentiment. Lets be honest, the housing market is still very challenging. Extending the “hold no pass” option for a senior who has loss real equity in their homes will give them a real option and chance to recover some of that equity, or more time to transition. As for the FHA buying into this financial investment, they would be buying in at record low home values. Congress perhaps needs to understand that this isn’t a blanket plan for a million seniors choosing the pamphlet phrased ” better lifestyle” scenario. Its way more practical in offering seniors “a better, working alternative”.  

    • Bobby Socks,

      But our marketing says straight up that the home is paying the senior, not FHA.  Your statements play right into the hands of people like Senator McCaskill.

      What does this following sentence mean?  “Extending the ‘hold no pass’ option for a senior who has loss real equity in their homes will give them a real option and chance to recover some of that equity, or more time to transition.”  

      Beyond that how does a mortgage which is designed to allow negative amortization allow for home equity to recover?  In an environment where home values are not recovering, how would any mortgage with significant upfront costs provide more time to transition?  This sounds like a mortgage of last resort not the financial tool you presented upfront.

      It is not Congress or HUD which advertised HECMs as providing a better lifestyle.  You need to develop how a HECM provides “a better working alternative.”  

      Neither the US taxpayer nor HUD is in the business of buying homes, holding them, and selling them.  Your idea would change the very nature of HECMs.  I, for one, oppose it.

  • Representative Sherman is someone I have known since his early days in San Fernando politics and his time serving as a member of the California Board of Equalization.  He was a key member in deciding on a critical sales tax issue related to my former employer, Kaiser Steel Corporation.

    How the Representative has concluded that the HECM program “has generated … an actual profit to FHA,” I have no idea.  It is in anticipation of net losses that HUD transferred significant amounts out of the MMI reserve funds to the HECM portion of the MMI Fund.  Without that transfer, the HECM portion of the MMI Fund would not show any net value to HUD.  Politicians sometimes make statements without all of the facts.  HOWEVER, on a PURE cash basis, the HECM program has brought in far more cash than has been expended to date (but that is nothing more than a temporary net cash position).

    HERA was supposed to have ended the cap problem altogether.  Congress decided against it when Democrats were in control of the issue.  What leads us to conclude differently now?  If Democrats did NOT back this measure then, some industry leaders have led us to expect that it will not happen now when Republicans are in control of the House.  Based on the statements of those leaders, it seems the cap will be a continuing issue for years to come.

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