Reverse Mortgage Lenders to Congress: Loan Cap Presents a Major Issue

A longtime rule limiting the total number of reverse mortgages allowed under law came to the attention of senators last week during testimony presented by the National Reverse Mortgage Lenders Association.

In prepared testimony presented to the Senate Banking Committee, NRMLA President and CEO Peter Bell reviewed the history of the “authorization cap” for reverse mortgages under the Federal Housing Administration’s insurance program.

Currently set at 275,000 loans, the cap has been suspended numerous times under appropriations or continuing resolutions. However, the number of loans outstanding exceeding that cap presents a “major issue,” for reverse mortgage lenders, Bell said.

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“A major issue faced by the reverse mortgage industry is that, while the HECM program was made permanent back in 1998, there has been a statutory limit on the number of loans FHA is authorized to insure,” Bell said in the testimony. “Although the cap has been routinely raised or suspended by Congress in a series of consecutive appropriations measures and continuing resolutions, the existence of the cap deters some industry participants from making the commitment required to fully embrace reverse mortgage lending, thus keeping competition in the market at a minimal level.”

Historically, the cap has been raised from 2,500 loans in 1990 to 25,000 loans by the end of 1995. Subsequent raises of the cap led to its current level, set in 2006 at 275,000. 

The cap must be addressed as one of the program measures being considered by Congress, NRMLA said. 

“NRMLA urges Congress to support the continued availability of Home Equity Conversion Mortgages by permanently removing the cap on the number of HECMs that FHA may insure to minimize any possible disruption in the availability of this importance personal financial management tool,” Bell said. 

Written by Elizabeth Ecker

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  • Why should there be any cap at all? If the risk management folks at HUD are doing a decent job, the number of mortgages should be irrelevant. Eliminating HECM Standard for fixed-rate loans, which is the major culprit in the program’s $3 billion losses, should solve the problem. As home values continue to recover, the programs finances should stabilize — just as the FHA program’s have.

    • The major culprit in the programs 3 B loss isn’t the fixed rate standard, it’s the fact that this country continues to force it’s seniors to pay property taxes at the same scale as those who are still able to earn a living wage. We need to be talking about a federal senior tax exemption (not a complete forgiveness of taxes, just scaled back to match the mean level of senior income…similar to Washington state’s program) This industry needs to shift it’s focus to a more socially radical stance and benefit the seniors we profess to care about by bringing this kind of idea to the forefront of public awareness. This is the only way the HECM will survive.

      • While this is not necessarily the opinion of Security One Lending, it is one of an actual senior. I find your idea abominable.

        Somehow the logic between the HECM surviving and lower real estate taxes for seniors is lacking. I am just a senior so slow down a little and fill in the “missing links.” Perhaps you start by explaining how the federal government would make up the lost revenues to the states.

        By the way there was no $3 billion loss. Per the actuarial report, the audited financial statements, and the HUD annual report to Congress, all for last fiscal year, the actual loss last fiscal year was over $4.2 billion. When the $2.8 net loss position is being addressed that is a balance sheet item which based on capital reserve requirements should be not be negative (a loss) but rather positive by over $1.56 billion. The HECM portion of the MMI Fund (just the latest four years of endorsements) is under performing by over $6.6 billion which is the net loss position plus the capital reserve requirement plus over $2.28 billion in funds which FHA took from other MMI Fund programs during fiscal years 2010 and 2011 to bolster the HECM net position. $6.6 billion is a little more than the $3 billion you discuss.

  • Good of our trade association representative to remind those in Congress who wish to dramatically limit HUD’s involvement in housing finance (hecms in particular) that there are already adequate constraints in place that are simply being ignored.

  • We have faced the cap issue a few times in the past. Each time seems to bring us stress. Stress comes because we never know what congress may do from one moment to another!

    One may argue why would Peter Bell bring this up now? Good question, however, the subject has to be faced sometime, why not get it out of the way now.

    With as many seniors becoming eligible for reverse mortgages these days and the uncertainty in the economy, congress would be foolish to curtail the amount of HECM loans to be insured. However, we have seen many foolish moves by congress these days, have we not?

    John A. Smaldone

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