Industry Moves to Get HUD Ability For Reverse Mortgage Program Changes

The reverse mortgage industry and the Department of Housing and Urban Development are moving quickly to get authority from Congress to make program changes after the Obama Administration’s budget showed a projected $943 million shortfall.

If the authority is given, HUD would be able to make changes through Mortgagee letters rather than go through the long rule making process, which is currently the only option.

Without the new authority, the agency says it will be forced to make blunt” changes to shore up the program by the end of the fiscal year. HUD and the industry has already taken steps to get the legislation needed.

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“We are working with the authorizers,” said Shaun Donovan, Secretary of HUD before the House Appropriations Committee Wednesday, adding that after seeing an FHA reform bill that passed the House last year, he is hopeful that another bill could track the same progress.

“We believe these reforms are absolutely critical,” he said.

Donovan also stressed concerns that FHA reform could be put off as Congress decides how to wind down Fannie Mae and Freddie Mac, in an attempt to address FHA changes along with the other government sponsored entities in one bill. The FHA change is needed sooner, he said.

“It’s important that we move quickly on these steps to shore up the fund and not delay those with the broader [reforms],” he said.

The changes are supported by the National Reverse Mortgage Lenders Association and other trade groups, which are working quickly to get the legislation approved before the end of the fiscal year.

“We are working with various members from both sides of the aisle in both houses of Congress to try and gain this authority for FHA,” says Peter Bell, NRMLA president and chief executive officer.

The changes needed could be combined with larger FHA reform, or as standalone legislation according to industry groups.

In March, Sen. Robert Menendez, (D, N.J.) introduced The HECM Stabilization Act of 2013, which would allow the FHA to implement “much-needed” program reforms.

Under the bill, those include reducing the amount of money taken by borrowers at origination to sustainable levels; performing borrower financial assessments to determine if a HECM is affordable; and establishing escrow accounts with lenders to prevent foreclosures from tax and property insurance delinquencies.

The Mortgage Bankers Association expressed its support for the changes in the bill during a hearing last week before members of the House Financial Services Committee.

“MBA is concerned that if HUD is not granted this authority in a timely manner through the HECM Stabilization Act of 2013, or another similar mechanism, the agency will be forced to take drastic measures to severely curtail the program, thereby eliminating an important financial tool for American seniors,” said MBA President and CEO David Stevens.

Whether or not FHA will need support from the Treasury is still up in the air, but changes should be addressed in the meantime.

“I am concerned that we will need to draw at the end of the year given what we know at this point,” Donovan said Wednesday. “But I’m not going to give up until a day before the end of the fiscal year because I want to make sure we are doing everything we can.”

Reverse mortgage advocates are working with elected officials toward the change in a timely manner.

“This is a time for [us] to be available for questions and be up on the Hill getting our message out,” says West Richards of the Coalition for Independent Seniors, a group formed by members of the reverse mortgage industry.

Written by Elizabeth Ecker

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  • This is all great but the real question is why in the world is the HECM portion of the MMI Fund projected to be in a worse position than even the actuaries were projecting at the end of fiscal 2012? It is about TWICE as bad as they were predicting.

    Not long ago John Lunde was painting a rosy picture for this fiscal year citing how housing values are going up and the endorsement picture looked better. He is the numbers guy on the NRMLA Board of Directors. Surely John would have a good handle on the situation but no within days of his glowing projected picture we see HUD saying HECMs will lose an additional $2.4 billion this fiscal year. While one could rightfully argue that was an improvement over the results for last fiscal year (a loss of $4.2 billion), even the pessimistic actuaries were saying there would be positive results for this fiscal year of $131 million in their fiscal 2012 report.

    So if things are this volatile that even our numbers guys are so horribly wrong, what is going on? It seems industry leadership is more lost than any of us. It is hard to believe that people are saying they are getting “our” message out. What message is that? Does anyone in our industry actually understand the impact of our program on the MMI Fund? Apparently NOT.

  • Change, change, change, this seems to be all we hear these day’s. However, some what has been proposed in the “HECM Stabilization Act of 2013” is not all bad.

    One area that I spoke about on various occasions has been the escrow account for taxes and insuranse. I am not talking about a set aside fee but a true escrow account. I have felt that if an escrow account was set up right from the outset it would reduce drastically delinquencies of Taxes and insurance on the part of our seniors.

    I have said in the past if we established the escrow account at closing with three months of taxes and insurance. In addition to the fund set up amount I feel we should give the seniors a coupon book every year with 12 coupons in it.
    Make it easy for our seniors. Seniors can budget their money on a monthly basis, it is the surprise lump sum at the end of the year that causes the problems.
    As far as the rest of the proposals in the act, that is discussion for another day.

    John A. Smaldone

    • John,

      But does the law set up escrow accounts for mere collection following funding? Does it establish set asides into escrow accounts rather than set aside accounts? Is there some combination of both?

      Unless the system is voluntary, the concept you have been flirting with leaves 12 times a year a senior can default rather than just the normal 2 or 3. In many states the foreclosure laws are quite precise in their triggering mechanisms that could spring foreclosures much earlier than under the current method.

      If you have formal information on the bill provisions dealing with escrow accounts, please cite them. Have a great weekend.

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