HUD Secretary to Address Congress on Potential Reverse Mortgage Changes

Reverse mortgage adjustments to make the program safer for seniors may be spelled out a little more clearly this week, Reuters reported Wednesday.

Housing Commissioner Shaun Donovan is scheduled to testify before the Senate Committee on Banking, Housing and Urban Affairs Thursday where he may detail some of those policy options to shore up the Federal Housing Administration’s insurance fund.

The change has been a point of discussion for the past several weeks following an independent audit of FHA’s mutual mortgage insurance fund and an FHA report to Congress based on those findings that found the HECM program with a net worth of negative $2.8 billion at the end of fiscal year 2012.

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The report spelled out program changes that would potentially limit the product’s uses or change the amount available for borrowers. Department of Housing and Urban Development Deputy Assistant Secretary Charles Coulter told Reuters the agency will pursue one of two avenues to address the problem.

Its preferred approach, he said, is to get emergency authority from Congress to cap up-front loan draws at the greater of a fixed percent or ‘mandatory obligations’ associated with the reverse loan—closing costs and the retirement of mortgage liens or federal debt.

New safeguards to ensure borrowers can meet their tax and insurance obligations will also likely be added, he said.

More restrictive changes will become necessary if that authority is not granted. Either way, the changes are expected by the first or second quarter next year, National Reverse Mortgage Lenders Association President and CEO Peter Bell told Reuters.

“I think these are healthy changes that will address a handful of concerns that keep arising,” Bell told the publication. “There have been concerns that fixed-rate, full-draw loans are being taken out by people who should do otherwise. This will put a check and balance on that, and help the FHA with the mix of loans it’s insuring from a risk standpoint.”

The changes are in the interest of a program that better serves the senior borrowing population it ultimately was designed to assist.

“Seniors will need to rely on their homes as one of the mechanisms for sustaining themselves during retirement,” Coulter told Reuters. “Reverse mortgages can help seniors age in place in cases where they don’t have access to other liquid capital. We’re just trying to get this program to operate more consistently with that statement than it is today.”

View a copy of the Reuters article here.

Written by Elizabeth Ecker

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  • Clearly, equal protection and discrimination overtones here. Go read the 5th and 14th amndments.  If this were any other group, using their equity for any other reason, there would never be someone in HUD or Congress trying to “protect them” by dictating the home owner’s ability to access his own funds. This is an unconstitutional proposal. I hope someone stands up and says so instead of just apologizing for all us helpless borrowers who need big government to watch over us.

    And hey, don’t argue the point unless you have a law degree, OK? Because the constitution is NOT subjective on this matter.

  • Hi Legal_Eagle09,

    Unfortunately, I believe you are wrong here and I will take up your challenge.  First, the Fifth Amendment doesn’t apply.  The government is not taking money, it is making it accessible by backing the reverse mortgage market in the first place.  Whenever the government either gives or makes money accessible, it has the right to put some strings on how that money is and/or will be used.  The Fifth Amendment specificaly states that “nor shall private property be taken for public use, without just compensation.”  Since the government is providing the compensation for the property ultimately being taken, the 5th is out.

    As to the Fourteenth Amendment, I am not sure where you are going with this.  As I said above, telling someone what they can do with money they would not have except for the government backing the loan is well within the government’s rights.

    The problem with letting the market take care of itself is that some populations are more vulnerable than others.  (Heck, the politicians figured this out years ago, just look at how they run their campaigns.)  If the government is going to back a loan, the way the FHA loans are backed, then the government has a duty to make sure that both the consumer and the lender are taken care of appropriately.  Particularly if the government is going to offer a loan that is as potentially risky as a HECM can be.  When done properly, a HECM is a godsend to those who need it, when done wrong, it can be the worst thing that has ever happened to them.  Heck, even when done correctly, it can have unintended consequences, or people can put on rose collered glasses to avoid seeing the pitfalls.  Just a quick glance at our current econimic state shows why we should not be letting the market take care of itself, because that is precisely what is happeneing right now.  We are paying for the good times with some very bad times.

    Finally, I don’t care whether or not someone has a law degree when it comes to arguing stuff like this.  There are a tremendous number of people who never went to law school that can argue rings around most lawyers, and be absolutely correct.  And, there are any number of people who went to law school, and graduated with great grades, who don’t have enough sense to come in out of the rain.  The only thing that a law degree says is that you had enough time, drive, and desire to sit through four years of college and then an additional three years of law school learning a trade.

    Frank J. Kautz, IIStaff Attorney
    Community Service Network, Inc.52 BroadwayStoneham, MA 02180(781) 438-1977(781) 438-6037 faxFrankKautz@csninc.org –workFrank@Kautzlaw.com –private

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