HUD Budget Shows Reverse Mortgage Program Back on Track

The annual budget proposal for the Department of Housing and Urban Development, released today by the Obama Administration, indicates the administration sees the reverse mortgage program, and the Federal Housing Administration overall, is regaining stable financial footing. 

The agency is requesting an increase of nearly $4 billion over current funding levels—an increase that trumps that of other government agencies for the fiscal year 2016 budget proposals. The improvement is continued over last year’s budget proposal which also reflected a positive trajectory for FHA’s financial status. 

“HUD is the Department of Opportunity and the President’s budget proposal is a blueprint for greater opportunity for all Americans,” said Secretary Julián Castro in a press release. “By increasing our Department’s funding level by nearly $4 billion over current levels, the President’s Budget helps us continue our progress toward achieving our mission to promote homeownership, support community development – including making neighborhoods more resilient from natural disasters – and expand access to affordable housing for all.”

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Secretary Castro was not present during a press call to discuss the budget proposal on Monday. 

Projecting a guaranteed loan subsidy rate of -0.69% for the HECM portion of FHA’s Mutual Mortgage Insurance Fund in 2016, the administration sees the reverse mortgage program generating positive cash flow in the coming fiscal year; up slightly from a negative subsidy rate of -0.4% projected for fiscal year 2015. A positive subsidy rate would indicate the program is projected to generate negative cash flow, or a loss.

The department pointed to HECM program changes that have improved the product’s sustainability in the market. 

“During the housing crises, seniors were significantly impacted by the recession and falling home prices and, as with Forward Mortgages, risk to the MMI Fund increased,” HUD wrote in its budget proposal. “Since the passage of the Reverse Mortgage Stabilization Act in 2013, FHA has implemented several changes to strengthen and enhance the HECM program.”

The changes noted by HUD include limiting upfront draws, changes to the mortgage insurance premium structure to encourage lower initial draws and a shift to Adjustable Rate HECMs, and and the upcoming financial assessment that will take effect March 2. 

The outlook for FHA’s mutual mortgage insurance fund as a whole is improving from recent years when the insurance fund sought a treasury infusion of $1.7 billion—the first time such an infusion was required.   

The budget includes additional provisions related to the Home Equity Conversion Mortgage program including a request for additional housing counseling funds, as well as a lift on the cap at which the number of outstanding reverse mortgage loans has been set by Congress. 

Set initially at 2,500 loans in 1987, the HECM cap was later revised to a limit of 275,000 loans in 2006. Since then, the cap has been suspended several times, and has been debated by members of Congress in the interim. 

Written by Elizabeth Ecker

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  • I would not have been there for the press call either if I were the Secretary. I don’t know if I could have kept a straight face to say that things are getting better since the passage of the Reverse Mortgage Stabilization Act of 2013 especially since just about four months from enactment (8/9/2013) and just two and one-half months after the start of fiscal 2014, the Department predicated that the book of HECM business for fiscal 2014 would end up increasing the MMI Fund by $1 billion when in fact it resulted in a reduction of $7.7 billion. But who knows, maybe, just maybe this time the projection for the fiscal 2016 book of HECM business is right.

    So for now be of good cheer!! For the next 20 months we can celebrate that the outlook for the fiscal 2016 book of business looks like it will have a positive impact on the MMI Fund.

    {But then again not all of us are THAT optimistic. Some of us need to be realists even if we cannot be pessimistic about such a great product with such a great demographic to serve.}

  • …changes in the program to strengthen and enhance the HECM…for who? Certainly not the senior citizen. It is now a loan for people who don’t need it. The changes are draconian, cruel and impractical. The government has turned it’s back on the senior citizen.

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