Who’s Speaking to Congress on Reverse Mortgage Matters, Anyway?

As members of Congress work to communicate with different industries, including the reverse mortgage business, representatives from those industries—and outsiders—are often called to testify. Sometimes, they are experts on the topics at hand, but other times, their areas of “expertise” may turn out to be less fitting. 

Such was the case in a June hearing before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity. The hearing, on the Federal Housing Administration’s multifamily insurance programs, featured input from a CEO of a registered broker/dealer specializing in foreign markets and securities.

The CEO, Peter Schiff, known for his “vocal and unpopular bearish views of the U.S. economy, voiced prior to the 2008 financial crisis,” according to his company’s website, was called upon to testify, causing a stir within the hearing for his responses to questions posed by members of Congress. 

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“Unlike many of my co-panelists I do not come here representing a specific coalition or group that has an interest in promoting the multi-family sector. I am here to represent the interests of the common U.S. taxpayer who will have to make good any liabilities incurred by the Federal government and who will have to live with the consequences of distortive government policies (as we all have been doing co conspicuously in recent years),” Schiff said in prepared written testimony. 

The reverse mortgage industry, too, has seen these types of “experts” come to testify from far reaching corners of the housing world.

A hearing in May devoted to the reverse mortgage industry comprised a panel of industry stakeholders including representatives from the National Reverse Mortgage Lenders Association, Generation Mortgage, AARP and the National Council on Aging. The hearing, titled “Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors,” also called upon two academics participants to testify. 

Dr. Anthony Sanders, Distinguished Professor of Real Estate Finance, Senior Scholar, Mercatus Center at George Mason University and Mr. Houman Shadab, Associate Professor of Law, New York Law School were called upon for their expertise in housing related matters. 

Shadab stressed reasons why the private reverse mortgage market can exist without FHA insurance. 

“Congress should not expand the HECM program,” he said in prepared testimony. “Rather, Congress should consider reducing the loan amounts borrowable under the HECM program and reducing Ginnie Mae‟s HMBS guarantee.”

Sanders went further to suggest that FHA get out of the reverse mortgage business altogether. 

“The Federal government should get out of the reverse mortgage insurance and subsidization business, particularly since there is an easy alternative: seniors sell their home and buy a smaller dwelling or rent,” he said. 

While this may be a possibility for some people, it is easier than it sounds, with so many homes today that have lost substantial value as a result of the housing market crash. Many retirees may not have sufficient income to maintain rent, leaving them with few options for moving. 

Congress must hear from people who are informed and aware on the issues they are called to discuss. While a balanced approach is needed, we have to wonder why outliers and self-proclaimed unpopular views are chosen in such important instances. 

Written by Elizabeth Ecker

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  • We believe in the program but there is a significant part of the population which believes that the federal government should terminate FHA, Ginnie Mae, Fannie Mae and other governmental bodies somehow connected to commercial type endeavors which were specifically authorized in the Constitution.  Senator Tom Coburn, MD (R-OK) and a few others serving in Congress strongly agree and promote that position.

    While there are many positions on which I agree with the Senator, this is not one; however, his positions are more consistent than mine.

  • Mr. Shadab better hope he’s not in a position in his retirement years to need money, but want to stay in his own home!  And where was the Generation representative to explain to this man that 83% of seniors don’t WANT to move out of their homes?  How are they going to sell a home that’s upside down?  Has this man even looked at the housing market lately?  Uninformed, pompous people like this really need to take a lesson in reality and really try to see what these seniors are dealing with.  Perhaps if they would inform themselves before they speak on a panel, they would sound more intelligent.

  • Mr. Shadab’s  recommendation is absurd! His statement that the reverse mortgage can exixt without FHA insurance would destroy the HECM program. There would not be a secondary market for the product now or in the future and the comfort for the senior would be eliminated.

    Mr. Shadab recommends that “Congress should not expand the HECM program”. He goes on further to recommend that congress should consider reducing the loan amounts
    borrowable under the HECM program and reducing Ginnie Mae‟s HMBS
    guarantee.

    This would also destroy the reverse mortgage and eliminate a valuable retirement tool for our seniors. Another point, we can’t reduce the borrowable amount any further than it is now. As it is, the actuary calculations are to the point that many seniors can’t get a reverse mortgage.

    Then, Dr. Sanders went further to suggest that FHA get out of the reverse mortgage business altogether. Well my friends, what they are saying is “Eliminate the reverse mortgage” from the industry entirely!

    The interference from people and government that do not fully understand the reverse mortgage and the good it is doing for our seniors as well as the overall economy is growing daily! The hypocrisy is at it highest level that I can ever remember. This is cutting off the legs to spite the whole body!

    Some how we need to unite and start making some real noise. We need to be the one’s that should start interfering. I feel that I am starting to see the industry I have been in for 13 years begin to crumble. What are we as an industry going to do about it?

    Someone or some origination, please come up to the plate and start organizing all of us to take action, together as one unit!!!! I am ready if you are?

    John A. Smaldone

  • I would like to see government out of the insurance and real estate business.  If HECM is such a sustainable vehicle (i.e. the insurance on these loans is a profitable, low risk endeavor) then why have we not seen a private entity create an exact replica of the HECM investment?  Or have we?

    • Mr. Rosengarden,

      Since 2009, the overall HECM program has not been profitable or self-sustaining.  Elizabeth Ecker presents an even handed report in her November 15, 2011 RMD article titled “FHA Chief:  Reverse Mortgage Program Changes are Paying Off,” and located at:
      http://rmdaily.wpengine.com/2011/11/15/fha-report-hecm-portfolio-to-increase-on-rising-home-prices-and-mips/

      While the budget projection for the book of business for this fiscal year was positive, no one knows how it will come out due to assumptions in how home prices will rise, when HECMs will terminate, what the ratio of Savers will be, the ratio of fixed rate Standards to total volume, homes with values in excess of the lending limit, and other critical assumption issues.  On top of everything else we already know HUD substantially overestimated the number of endorsements for this fiscal year but it was done in the blind well over a year ago.The HECM portion of the Mutual Mortgage Insurance (“MMI”) has not contributed one penny to the MMI Capital Reserve (“CR”) Fund yet FHA has been forced to allocate over $2.2 billion dollars from the MMI CR just to keep the HECM MMI Fund positive. Further without a change in valuing the fund, the balance in the fund as of 9/30/2011 would be about $600 million worse.

      As the Acting FHA Commissioner states the allocation from the MMI CR during last fiscal year was only $535 million rather than the $1.74 billion allocated during the fiscal year ended September 30, 2010.  In early 2009 while Mr. Peter Bell was trying to bring calm and reason to the announced $798 million shortfall in the HECM budget projection for fiscal 2010, we had some industry leaders talking about cumulative cash profits at FHA in regard to the HECM program.  That type of less than intelligent response to an accrual basis projection is still being promoted today to Congress by some of these individuals.  They have not accepted the concept that on the accrual basis, the overall HECM program is in a loss position.

      If you want to get a more pessimistic picture of the status of the program, try reading the articles by New View Partners, LLC at http://newviewadvisors.com/commentary/, particularly the one titled:  “FHA Fiscal Year 2011 Annual Reports — Still Too Rosy,” dated November 18, 2011. Some of their prior articles project even a worse picture.

      If the value of the collateral which is underwater does not rise higher on average than 3.9% annually, the picture on these HECMs will only get worse.  Having the properties which are not underwater rise in value at rate higher on average than 3.9% annually, the increases simply keep those HECMs from eventually becoming potential problems.  Any gains on the value of those properties belong to the borrowers and their heirs, not FHA so to FHA MMI and GI Funds it does not matter if the value on the related collateral equals the balance due on those HECMs or greatly exceeds the balance due; the excess does not belong to HUD.

  • I would like to see reverse mortgages stand on their own merit without the FHA (or only limited involvement), but now is not the time to do that.  The market will replace the program when the time is right, but leave the program unchanged for now.   

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