Senators Seek Answers On Reverse Mortgage Program, Changes

Reverse mortgage stakeholders fielded questions Tuesday before a Congressional panel comprising two senators. Spanning topics from non-borrowing spouse issues to details on program changes proposed by the Department of Housing and Urban Development, Sens. Robert Menendez (D-New Jersey) and Jerry Moran (R-Kansas) sought answers on the best course of action for sustaining the Home Equity Conversion Mortgage program. 

“There are real concerns about HECM and its portfolio and how it could lead to the Federal Housing Administration having to draw on the Treasury,” said Sen. Menendez. “How do we get a handle on this problem, and what can we do to promote long term sustainability for seniors as well as the Mutual Mortgage Insurance fund?” 

The hearing falls several months following the Obama Administration’s proposed budget for fiscal year 2014, which pointed to a potential $943 million FHA bailout due to reverse mortgage losses sustained in the administration’s most recent books of business. 

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“Congress must act now,” Menendez, who has sponsored legislation to grant HUD additional authority to make program changes. 

With respect to the changes proposed by HUD, which would require the additional authority in order to bypass the rule making process, the reverse mortgage industry strongly supports the changes, National Reverse Mortgage President and CEO Peter Bell told the panel. 

“The three primary changes that FHA would like to quickly implement on the program, (a.) financial assessment of borrowers; (b.) principal limit utilization restrictions; and (c.) tax and insurance set-asides, would not only protect the FHA insurance fund, but simultaneously provide yet another level of safeguards for consumers,” Bell said.

The National Council on Aging also spoke in support of the changes, noting the importance of funding and resources for reverse mortgage counseling. 

“The changes proposed could have a stabilizing effect on the program, assuring its existence for years to come. NCOA’s primary concern is ensuring that vulnerable older adults have access to appropriate resources to help them age in place with dignity, coupled with strong protections against financial abuse and exploitation,” said Ramsey Alwin, senior director of NCOA’s economic security program.

AARP’s Senior Strategic Policy Advisor Lori Trawinski expressed concerns about bypassing the rule making process, which would not allow for a public comment on the changes. 

“While we support the idea of tax and insurance escrows or set-asides, the public should have the opportunity to comment on the specifics of such program changes during the normal rule making process to ensure that changes contain adequate consumer protections and are reasonable regarding the amounts to be escrowed or set aside,” Trawinski said. 

The house passed its bill by unanimous consent earlier this month, with the Senate yet to vote on its own legislation. Meanwhile, HUD has also said it has rule making under way.  

“We look forward to looking at the house’s legislation,” Sen. Menendez said. “The opportunity to move forward is one we may have to consider.”

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  • Here I disagree with NRMLA. Ms. Trawinski is very correct.

    The independent policy making of HUD is in large measure what caused a very significant portion, if not all, of the negative MMI Fund net position. HUD could have easily terminated the fixed rate Standard much earlier than it did but outright refused.

    While everyone is shocked by the GROWING negative net position of the HECM portion of the MMI Fund as recently estimated by Secretary Donovan at over $5 billion by fiscal year end, (It was just $2.8 billion negative last fiscal year end!) It is far worse that HUD attempted to subdue worries in 2010 and 2011 about its poor budgetary loss estimates by simply transferring reserves from other MMI Fund programs to the HECM portion. Those over $2.2 billion transfers are not inter program liabilities but rather they are buried in the HECM portion of the MMI Fund.

    There is a strong reason for the rule making process. It is part of an open and free society. Personally, I condemn the House for passing the measure.

    No HUD program is so sacred that it should not be open to discussion and comment. The abject failure of HUD to respond timely against its own generated fixed rate policy and how it tried to hide the growing problem should stand testimony to this fact.

    Aging in place is not in the Constitution, the Bill of Rights, or any federal legislation, not even in HECM law. It is an ideology whose principles are poorly founded and seem to be the guidelines HUD has adopted in developing policy. While the idea of aging in place is wonderful, government sponsorship through the current HECM program is not practical and is far too costly especially when we have Presidents who like LBJ insist on foreign intrigue while at the same time promote legislation encompassing the ideals of the “Great” Society incorporating the goal of government assistance from cradle to grave for all disadvantaged citizens, resident aliens, and illegal aliens. Not even FDR proposed legislation like we have seen over the last half century with massive dollars committed to either outright “police actions” (a euphemism for the the War in Vietnam) or declarations of war by Congress. We are not a country with endless resources for even the HECM program.

  • All this time spent wrangling Congressional “authority” to make rule changes in the HECM program, why didn’t HUD just ask Congress to also vote to approve the 3 changes HUD has clearly announced it wants to make?
    Additionally, there is something to be said for Public Comment periods in that HUD has a colored history of issuing mortgagee letters without giving them adequate consideration or seeking input from those affected.
    I think we’re about to get yet another lesson in the “laws of unintended consequences”.

  • Hopefully tax and insurance set-asides will only apply to borrowers whose DTI ratios are otherwise too high. If not, the related set-aside amount could be prohibitively large for most situations. Annual taxes on a $500,000-assessed home in Los Angeles are $6,000 at 1.2%, 20 years is $120,000. Those numbers would kill 99% of HECM volume.

    • Lance,

      Awhile ago rumors had it that when instituted the set aside would apply to all new borrowers and the number of years set aside would be three. Then as HUD was able to see patterns, the requirement could be modified. But those are hearsay.

      My dad has a home in LA County,his home is valued at over $490,000 and his annual real estate taxes are less than $1,200. Of course he has been in his home for decades and Prop. 13 still applies.

      Your point about high real estates is very valid for many seniors when it comes to HECMs for Purchase. Although there are exceptions, the HECMs for Purchase could see disproportionate set asides due to potential loss of certain real estate tax increase protections provided to senior homeowners due to buying a new home.

      There is so much fear in the industry right now, that it seems some of the supposed 30% decline in applications recently can be found in the crippling effect of fear on our origination production. Extreme (but accurate) examples do not quiet those fears.

      • Sorry, didn’t mean to exaggerate things and I admit to not knowing what the plans for set asides or DTI ratios are. Not everyone in CA has such a low tax basis as your father, he obviously purchased the home a long time ago.

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