The Federal Housing Administration says it is committed to its reverse mortgage program and making it sustainable, but it can’t act without the help of Congress.
Housing Secretary Shaun Donovan said Wednesday following the release of FHA’s budget for fiscal year 2014 that the Home Equity Conversion Mortgage is largely to blame for FHA projected losses that could require a $943 million bailout from the Treasury, but that reform of the program will lead to its sustainability.
“If it were not for the HECM program, FHA would be in positive territory,” Donovan said. “It is very important to carry forward those reforms for HECM.”
The administration remains committed to improving the program as a means for older homeowners to help pay for costs of living in retirement, Donovan said.
“There are some who say we should not have a reverse mortgage program. We believe the reverse mortgage program can be an important part of helping seniors responsibly use their home equity for health care and other needs. But only if it is responsibly done.”
FHA says the changes the changes being considered are limiting the maximum upfront draw available to borrowers, requiring the use of a financial assessment in making a HECM loan, mandating an escrow for mandatory property charges and a statutory change to clarify the rights and responsibilities of the non-borrowing spouse on a HECM loan.
But the agency is unable to make those changes until Congress grants the authority for it to do so.
The moratorium placed on the fixed rate standard reverse mortgage is a start to the changes that are needed, FHA said, but additional change must take place in fiscal year 2013, which ends September 30.
“We have to be in a position by the end of this fiscal year [September 30] so the program pays for itself,” Donovan said.
The 2014 budget projections indicate the reverse mortgage program is generating positive cash flow with current books of business maintaining a strong economic outlook on rising home prices and improvement in the economy.
Yet the past books of business will lead to $5 billion in losses in 2013 under the HECM program without program income to offset those losses, according to re-estimates of the program’s financial position cited by FHA. Positive revenue on forward loans will help to offset the losses, but still could amount to a shortfall in the measure of more than $900 million. Such a “bailout” is possible, but not a certainty, Donovan said, noting $30 billion in FHA reserves.
“No final determination on whether we need to draw will be made until October 1,” he said.
Written by Elizabeth Ecker