Congressmen Press HUD Chief on Reverse Mortgage Co-Ops, Stability

The Federal Housing Administration (FHA) faced heated questioning by the Republican majority-held Committee on Financial Services on Wednesday regarding the administration’s financial status and strategy moving forward.

During a more than three-hour long hearing, reverse mortgages were not a major topic of discussion, but questions about expanding eligibility to co-op housing owners and the impact of the Reverse Mortgage Stabilization Act were raised by Congresswoman Carolyn B. Maloney (D-NY) and Rep. Denny Heck (D-WA), respectively.

“Co-ops account for a large population of New York City’s seniors,” Maloney said, addressing Housing and Urban Development (HUD) Secretary Julián Castro. “Will you consider allowing owners of co-ops to participate in the reverse mortgage program?”


Castro replied that he would follow up with her regarding her question at a later date.

Heck, who introduced the Reverse Mortgage Stabilization Act along with Rep. Michael Fitzpatrick (R-PA), asked Castro to “bifurcate the performance of the legacy Home Equity Conversion Mortgage [HECM] program with those reverse mortgages that have been underwritten since enactment of the legislation.”

The bill was signed into law by President Obama on Aug. 9, 2013, and authorizes the Secretary of HUD to establish additional requirements to improve the fiscal safety and soundness of the HECM program. 

“I’m not sure the analysis has been done,” Castro said, adding that “the HECM [program] has been a challenging part of our portfolio and we believe this legislation will help stabilize it.”

The financial footing of the Federal Housing Administration’s forward portfolio improved in 2014, while the reverse portfolio remained in negative territory.

According to an annual actuarial report on FHA’s Mutual Mortgage Insurance Fund (MMIF), the fund’s overall net worth has improved by $6.1 billion in fiscal year 2014 — increasing from negative $1.3 billion to positive $4.8 billion. Its current capital ratio is 0.41%. However, the HECM portfolio showed a sharp downturn and resulting negative capital reserve ratio at -1.2%.

Federal law mandates that the MMIF maintain a capital reserve ratio of no less than 2%, a fact many Republican committee members chided Castro about, along with the recent $1.7 billion treasury infusion, or “bailout,” required by FHA. 

“The FHA is violating federal law by keeping a woefully insufficient capital reserve,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas). “This cannot be allowed to stand. What the FHA does with taxpayer money is our business, and do we want the federal government leading the charge into subprime lending?”

Castro defended the FHA’s fiscal state, noting that the FHA’s actions reflect a “careful balance” between strengthening the FHA’s MMIF and furthering its mission to “make housing affordable for hard-working Americans.”

FHA expects to have its capital reserve at 2% within two years, Castro said.

Written by Cassandra Dowell

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  • I’m surprised the Housing and Economic Recovery Act of 2008: HR 3221, wasn’t mentioned. For 6 1/2 years we’ve been waiting for the Mortgagee Letter that enables HECM’s to be compatible with co-ops. That’s way too long.

    • Raymond,

      Hasn’t HUD made it clear that it cannot add coops as an eligible HECM property type until coops have a way to be collateralized similar to the lien legal structure of residential homes? All coop owners hold is shares in a corporation which owns the property.

      You take a great marketing position but add nothing to getting the situation changed.

      • No – HUD hasn’t made it clear. For several years I offered the Fannie Mae Homekeeper to co-op owners. If Fannie Mae could do it, HUD can do it too.

      • Raymond,

        How easily we forget!!

        Home Keeper for coops in your area were only offered in Laguna Woods, CA as an experiment. Fannie Mae stopped offering Home Keepers for coops in Laguna Woods over a year before they terminated all Home Keeper originations at the end of 2008. By their action, one might conclude Fannie Mae saw the coop experiment as a failure.

        Yet there is a total difference between HECMs and Home Keepers. One is government insured and the other was GSE insured which was significantly different at the time.

  • One can easily understand why the Secretary had so little to say since he has been in office for less than 7 months. While the last four Mortgagee Letters related to HECMs were posted after he took office, most of the provisions in those Mortgagee Letters are still awaiting final implementation.

    If FHA is in trouble with a Republican Congress, it seems FHA may be finding resistance to its programs among some of the largest lenders in the country as reflected in a recent Collingwood Group report on the impact of the President’s reduction of forward mortgage MIP. Among the statements made were the following:

    “Respondents also were harsh on the FHA., 55% agreeing with JP Morgan Chase CEO Jamie Dimon who late last year said ‘The real question for me is should we be in the FHA Business at All.’ One lender who agrees with Mr. Dimon expressed that, ‘FHA has turned into a minefield for lenders and (mortgage) servicers.'”

    With Brian Montgomery as its Vice Chairman and Meg Burns as one of its managing directors, The Collingwood Group describes itself as “a Washington, D.C.-based business advisory firm, with offices also in New York. It was founded on a single idea: To help clients grow and protect their businesses.”

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