Senate To Confirm New FHA Chief, Reverse Mortgage Changes to Come

The U.S. Senate on Sunday confirmed Carol Galante as the new Federal Housing Administration commissioner and assistant secretary for housing. In her previous role as acting commissioner, Galante stated she is in favor of changes to FHA’s reverse mortgage program including a moratorium on the fixed-rate, full-draw Home Equity Conversion Mortgage Standard product.

In a letter written by Galante in December to Republican Senator Bob Corker of Tennessee, she stated her commitment to FHA changes including the reverse mortgage changes in an effort to shore up the administration’s finances. An independent audit of the FHA’s mortgage insurance fund showed a $16 billion-plus deficit in the fund’s net worth including a negative $2.8 billion in net worth of the HECM fund.

The changes will take place by January 31, according to the letter.

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In a December hearing before the Senate Banking Committee, republican senators questioned Housing Secretary Shaun Donovan as to the agency’s leadership and ability to manage the funds. Today, Donovan praised the Senate’s pledge of support to Galante’s role as commissioner.

“Today, the United States Senate took the important step of confirming Carol Galante to become the next Assistant Secretary for Housing and Commissioner of the Federal Housing Administration (FHA),” Donovan said in a statement Sunday. “I am pleased that a bipartisan majority in the Senate agreed that Carol offers responsible leadership at a time when we are pursuing necessary reforms to stabilize FHA’s financial outlook.”

Galante has served since mid-2011 as acting commissioner and assistant secretary. Previously she has held positions within HUD as well as the private sector.

Written by Elizabeth Ecker

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  • What types of fixed rates went south? Loans 100k to 200k or 300k to 400k……? It was reported last year that larger loans were not the problem.? Maybe Financial creditability and escrows or set asides would have solved the problem.When are we going to be informed about the details of the HECM fixed rate decision.

    • Mr. Mastromatto,

      Very little “went south!” These are projections, not returns on actual results. Little, if any, of the problems Ms. Galante and Senator Corker are dealing with have anything to do with defaults for failure to pay taxes or insurance. On top of that not all fixed rates will be eliminated next month, just fixed rate Standards.

      You really need to read to understand the issues. Most certainly fixed rate Standards have had a very, very negative influence in the default arena (for failure to pay property charges including taxes and insurance) which is mainly a FNMA and lender issue. It will have some insignificant impact on the MMI Fund to the extent that HECMs get assigned to HUD and such HECMs go into default after assignment but these defaults have very, very little to do with the subject at hand.

      What Ms. Galante is dealing with her is HECMs which are projected to be underwater at termination. Right now that is a $6 billion dollar problem for the MMI Fund. This is the sum of four problems:

      First the HECM portion of the MMI Fund was determined to be underfunded by $2.8 billion as of last fiscal year end. Second, the MMI Fund is required to have a position 2% reserve at year end. Third, the HECM portion of the MMI Fund received over $1.73 billion from other parts of the MMI Fund in fiscal 2010 and another over $0.5 billion during fiscal 2011. Finally, there are the earnings on this over $2.2 billion which has been transferred (the third problem) which needs to be paid back.

      Adding everything up, the HECM portion of the MMI Fund has a $6 billion problem just to be so called “self-sustaining.” The only HECMs in the MMI Fund are those endorsed after 9/30/2008. There has never been any funds transferred out of the HECM portion of the MMI Fund to any other HUD activity per the HUD financial statements audited by their independent auditors.

      You can read up on the subject both at the New View Advisors, LLC blogs on this subject (there are many on their website) or in the HUD annual reports to Congress on the MMI Fund (posted on the HUD website), particularly the latest such report. The New View Advisors blogs are interesting but somewhat biased. The blogs are based on the assumptions and model of New View.

      • i agree but if the standard was lower to savers principle limit the FHA would be stronger taking in more MIP. We don`t need goverment setting prices on costs.I think everyone would agree the market in the last few years has lowered costs beyond savers.

      • Mr. Matromatto,

        Your reply of “I agree but” is hardly an agreement.

        You say: “…if the standard was lower to savers principle limit the FHA would be stronger taking in more MIP.” But you fail to discuss the impact of such a move on endorsement volume. Besides why do you want to get rid of adjustable rate Standards? What negative impact are they having on the MMI Fund in terms of actual draws?

        What is so important about the 2% upfront MIP for Savers? If HUD adds that to the Saver cost, who would want Savers? You just destroyed a very effective product. It is designed to be a “pay as you go” product. The idea as to Savers was they would bring in additional revenues to HUD with little to no risk to HUD. So far that has panned out. What has not panned out is that we would be at least as good at originating Savers as we are Standards. The reason is we have the wrong people trying to originate this product.

        After the Fed comp rules went into effect, few would agree with your position on reducing upfront costs.

      • Mr. Mastromatto,

        If a Standard has the principal limit factors of a Saver, what happens to the Saver? Why do the adjustable rate Standards have to have lower principal limit factors?

        You lose me. Thanks for trying to help me see your point of view but I am afraid I just do not get it. I am sure everyone else does.

  • Smart business people would lower fixed rate standard
    principle limit to level of fixed rate saver and freeze fixed rate Saver until FHA is in the black.
    What if 70% of seniors start doing fixed rate saver and still
    default on T&I and the real estate market goes south.
    Losing upfront MIP is not a smart business move at this
    time.

    • Mr. Mastromatto,

      What impact are T & I defaults on HUD?

      The T & I default issues mainly impact 1) lenders not HUD since they involve issuer guarantees to Ginnie Mae and 2) Fannie Mae. The industry is already asking for financial assessment to mitigate that potential problem for future originations.

      The defaults will impact HUD as the number of HECMs which are in assignment grow but by then the problem is with adjustable rate HECMs since the problems with fixed rate will generally already have occurred.

      It would be far better for HUD if the defaults were coming from Savers rather than Standards right now. The ACTUAL losses to FHA occurring as a result of balances due being greater than the value of the home triggered by foreclosures from nonpayment of property charges would be much smaller if all of the fixed rate Standards in the current default pool were in fact fixed rate Savers.

      To be clear if all active fixed rate Standards were fixed rate Savers instead, the potential reimbursement losses paid by HUD would be much, much less. Can we at least actually agree on that?

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