Senators Open to Helping FHA Make Reverse Mortgage Improvements

During a hearing before the Senate Banking Committee Thursday, senators expressed concern over how additional reverse mortgage change will be made, saying they are amenable to helping the Federal Housing Administration to work toward that change. The hearing was called to discuss the role of FHA following its 2012 actuarial review finding the agency in a dire financial position due to losses including those sustained as a result of reverse mortgage insurance. 

In dialogue between National Reverse Mortgage Lenders Association President Peter Bell and Senator Bob Corker (R-Tenn.) during the hearing, Sen. Corker posed the question as to whether changes that have been made this year have been enough to sustain the program, and why additional changes can not be made in a timely manner. 

Regarding the ability to make changes in a more rapid manner, the senator said he was amenable to supporting the process by granting the authority needed. 

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“Candidly, I would be very open to doing that,” he said, referencing the authority FHA will need in order to implement additional reverse mortgage changes without having to go through the time-consuming regulatory process, and asking about the timing of the process. 

“In the last couple of months, we were able to do away with an entire program—the full draw fixed rate reverse mortgage—by mortgagee letter,” Corker said. “Why can’t we make the other changes in that regard now?”

Rather than to go through rule making to change items in the program regulations, which can take months and even years, the process could be expedited with additional authority, Bell said, noting that some blunt changes can be made by mortgagee letter, but there’s a need for more fine tuning of the program through changes in those regulations. 

“I certainly would be willing to look at that,” Corker said. 

Further, the senator pressed Bell as to whether the suspension of the full draw-fixed rate loan option was well received. 

“It was a good stop gap measure for the time being,” Bell said. “But there is a place for the full draw [fixed rate] loan in a number of circumstances.” 

Senator Robert Menendez (D-N.J.) also pressed Bell about the program, indicating that legislation would help alleviate some of the issues the industry is experiencing. 

“What would be the effects of not having a HECM program?” he asked, prompting a historical look at the program including a time when the market existed exclusively on the adjustable rate loan option. 

“It would be a shame to take the fixed rate option off the table, because it gives peace of mind at a time when people need peace of mind,” Bell said. 

Written by Elizabeth Ecker

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  • Is the fixed rate HECM off the table? It seems we have one even under Mortgagee Letter 2013-01. While it may not be as generous as the current fixed rate Standard, it is still fixed rate.

    Why is it a shame for the fixed rate Standard to go? While it may benefit lenders now and investors, for a relatively high percentage of such borrowers and most note holders (or their guarantors) this product could prove very costly in premature loss of the home due to payment defaults (rather than orderly sale of the home with greater equity) and note holder (or their guarantor) obligation to pay off the payment defaults.

  • For those who have not read it, the written testimony of Mr. Peter Bell is very well written and insightful; it brought to light aspects of the program which were very helpful. There was one minor hiccup about the time and legislation in which we obtained a single national lending limit. As correctly stated in Mortgagee Letter 2008-35: “The Housing and Economic Recovery Act of 2008 (HERA) established
    a national mortgage limit for all Home Equity Conversion Mortgages (HECM)….”

    There were many views presented in the Senate hearing, most of which focused on forward mortgages. Mr. Bell handled his portion very well.

    It did seem as if Senator Corker opened the door to discussing the reforms FHA states it needs to make more rapid changes to the HECM program. It will be interesting to see what how the Obama 2014 budget proposal handles the HECM program. With a $4.3 billion shortfall from the required 2% capital reserve for the MMI Fund generally and several on the panel stating the capital reserve ratio should be higher, the shortfall could rise to over $8 billion just for the HECM portion of the MMI Fund. At least one speaker inferred the percentage ratio may need to be even greater than 7%.

    It was interesting that no one argued about the validity of the actuarial study.

    For sake of clarity, the views expressed are that of a CPA and are not presented as a spokesperson for any lender including Security One Lending or any of its affiliates.

  • The effect of the loss of the HECM would be tens of thousands of senior CITIZENS displaced. The vast majority of borrowers do not use the proceeds of a HECM to go on a cruise or to help out the grandkids, they use it to give themselves a chance to make ends meet. After paying off the mortgage, many still can’t pay their property taxes. If the senators think that gutting the program or eliminating it is the answer, they are showing just how detached they are from the needs of the people who elect them. This is not a discussion of fiscal responsibility, it is a discussion of human compassion. The senators need to focus on why seniors can’t make ends meet, not on how they can make it even more difficult for those in need.

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