Members of Congress scrutinized the Federal Housing Administration’s reverse mortgage program Thursday with at least two congressmen expressing support for authority sought by the agency to make calculated program changes to shore up its insurance fund.
The program has come under heightened attention from Congress following an actuarial report in late 2012 which indicated the Home Equity Conversion Mortgage program resulted in $2.8 billion in negative net worth for the Mutual Mortgage Insurance Fund. Subsequently, the Obama Administration’s budget proposal for fiscal year 2014 indicated projected program losses that could lead FHA to draw on a near billion-dollar taxpayer bailout for the first time in its history.
“One of the troubling things is [borrowers] aren’t required to meet any income or credit qualifications,” said Congressman Randy Neugebauer (R-Texas) who chairs the Subcommittee on Housing and Insurance under the House Financial Services Committee. “These lax standards have resulted in higher default rates, leaving seniors in financial hardship.”
Department of Housing and Urban Development officials including HUD Secretary Shaun Donovan have stated publicly the agency is seeking authority to make program changes to better protect borrowers and shore up the insurance fund. Without that authority, HUD is limited to changes that would have to go through a lengthy rule making process, or would result in blunt force to the program in its current form.
Two members of Congress spoke in favor of the changes Thursday citing a forthcoming legislation proposal that would, if approved, grant HUD the authority it is seeking.
“Does this language of the [drafted] proposed legislation give you what you need to address this problem?” Congressman Denny Heck (D-Wash.) asked witness Charles Coulter who serves as deputy assistant secretary for single family housing at HUD.
“We do believe it gives us the flexibility to make the changes we noted earlier,” Coulter said. “I believe we can put this program on a positive track and ensure it is providing service in the market.”
Specifically, Coulter outlined several changes including limiting the amount of the allowable draw; where appropriate, mandating the use of escrow accounts or a set-aside to ensure continued and timely payment of property charges including taxes and insurance, and; requiring the use of a financial assessment as part of the loan origination process to ensure the appropriateness of HECM products for potential borrowers.
Rep. Heck and fellow Congressman Mike Fitzpatrick (R-Penn.) both stated support for change and for the drafted legislation they referenced.
The subcommittee pressed Coulter on whether change can be made without additional authority, in particular with respect to non-borrowing spouses in reverse mortgages who end up in foreclosure once the borrowing spouse has passed away or has to move from the home.
“In addition to the proposed legislation, are there things you can do to help spouses understand?” Heck asked.
“We clearly need to continue to work closely with the industry, the CFPB and counseling,” Coulter said. “We now have an Office of Housing Counseling. We have engaged them. The counseling that is mandatory ensures that seniors know what they are getting themselves into, what their obligations are and they help recognize it’s part of an overall financial planning solution. It is a mechanism to tap into when they have unexpected financial needs.”
Several other questions from the panel concerned reverse mortgage advertising, and accounting for the reverse mortgage program under the same insurance fund where FHA’s forward lending program lies.
A previous bill, the HECM Stabilization Act of 2013, was introduced by Senator Robert Menendez (D-N.J.) in March.
Correction: A previous version of this article misattributed a quote in paragraph six to Rep. Joe Heck (R-Nev.) who does not serve on the House Financial Services Committee. The article has been updated to reflect the quote from Rep. Denny Heck (D-Wash.). RMD regrets the error.
Written by Elizabeth Ecker