Sen. Corker: Changes to “Flawed” Reverse Mortgage Program a Good First Step

Following an announcement indicating the Federal Housing Administration will on April 1 discontinue its fixed rate standard reverse mortgage product, Senator Bob Corker (R-Tenn.) said he is pleased with the change. 

The reverse mortgage program changes accompany additional changes to FHA’s insurance programs including more restrictive insurance requirements for FHA loans. Sen. Corker raised concern among Congress members in late 2012 on the heels of an annual audit of FHA’s mutual mortgage insurance fund that indicated FHA was in the red by a measure of $16 billion. 

The changes are a step, but there is more work needed, Corker said. 

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“I am pleased that the FHA is following through on the steps we discussed last year to strengthen its fund and to get itself back to solvency, but this is only a first step in fundamentally reforming our system of housing finance so that we are not completely reliant on the government – and on taxpayer losses – to support homeownership,” said Corker.

Corker penned a letter in December to then-Acting FHA Commissioner Carol Galante seeking improvements to the fund’s solvency. The requested changes were “in order to begin restoring financial stability at FHA after substantial losses, primarily from a flawed reverse mortgage program,” Corker’s office said. 

Members of Congress have indicated there will be several upcoming hearings to discuss the FHA’s dismal financial position, calling the administration “broke.” Additional changes to the reverse mortgage program including a financial assessment for borrowers and mandatory set-aside for tax and insurance are expected in the coming months. 

Written by Elizabeth Ecker

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  • While the elimination of the fixed rate Standard may temporarily satisfy the concerns of the Senator, he is but one of 535 members of Congress. The proposed changes can be helpful but as of yet, few people have any idea what the named changes will look like.

      • me too, it was more a statement on how they react with blinders on. I’d rather lose the Fixed Standard than lose the whole product. I really think that a combo of what some have proposed about a hybrid product and/or certain combinations of Medi-something and the reverse could really take the pressure off some budget concerns- sort of like self funding your retirement care while not worrying the money to pay for it is not going to there when you are older.

  • I have a lot of respect for Senator Corker, however, I have felt right along that eliminating the fixed rate standard completely was a mistake.

    I have said that there are other alternatives that can be taken with the fixed rate product. Hud could limit the interest rate ranges, have escrow accounts for the T&I. Allow options other than the lump sum, put restrictions on the other options. I suggest highly not to mess with the LTV, keep it the same. Have a full 2% of value MIP on the loan and there are many other features that could be added.

    Jim Veale is right about the proposed changes, few people have any idea what the named changes will look like.

    Bob Corker did not have an open mind on this issue and I wish he had. I have communicated with him on this and I was not able to get any where.

    John A. Smaldone

  • We certainly wouldn’t want to risk spending any money for the benefit of the elderly American citizen after all. Nice work Mr. Corker, let’s tighten down the screws a little more and make the greatest generation figure out how to get by without the help of the government they fought to preserve.

    • Mr. Gilmour,

      What the Senator did was to help FHA face reality and act responsibly (although far too late). FHA ended a type of reverse mortgage which FHA cannot support.

      The argument was made clear as far back as 2009 (see comments in the thread contained at http://rmdaily.wpengine.com/2009/08/24/future-valuation-problems-for-reverse-mortgages/). All that has happened after that point is FHA has proven the fixed rate Standard will not not work when home values are lackluster (or decreasing).

      Over fiscal years 2010 and 2011 FHA foolishly allocated over $2.2 billion out of its MMI capital reserve fund to try to preserve the program as it was then composed. In fiscal 2010 HUD took ongoing MIP up one hundred and fifty percent higher so as to force new borrowers to pay for the excesses of what happened in fiscal 2009 alone.

      It is now time to move on.

      • The FHA can support the standard fixed rate. As property values recover, the contingent liability eases and the black ink reappears. If property values don’t recover, this is small potatoes to the federal government (a 2.8 billion deficit where the HECM is concerned). Considering the number of citizens it benefits, it truly is negligible…especially when compared to nearly 1/2 billion to rebuild the oval office…(only benefits a handful of Americans). Perhaps Mr. Corker would like to have his obstuctionist practices exposed by a mass petition calling for his hands off the FHA? Stay tuned

      • Mr. Gilmour,

        Have you read the actuarial report? They assume home values will recover over time. But is that all that is needed? The active HECMs of concern are not static while home values turn around.

        First, balances due keep growing even as home values recover. Fixed rate Standards terminate as well. Also it is not sufficient that home values recover if the home value is still less than the balance due.

        It is OK to believe that somehow in someway miraculously the net position on those HECMs endorsed between October 1, 2008 and September 30, 2012 (inclusive) will become positive with no support from the US Treasury. The problem is, it is very, very unlikely.

        Let us say, we do not agree about finding some government expenditure to justify the net loss position of the HECM portion of the MMI Fund. The termination of the fixed rate Standard is more than justified.

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