Congressman Presses HUD to Extend Reverse Mortgages to Co-Ops

One member of the U.S. House of Representatives this week called on the Department of Housing and Urban Development (HUD) to issue swift regulations that would expand reverse mortgage access to seniors living in housing cooperatives.

Such is the mission of Congressman Eliot Engel (D-NY), a senior member of the House Energy and Commerce Committee, who on Tuesday called on HUD Secretary Julián Castro to implement rules that would allow co-op owners to participate in the Home Equity Conversion Mortgage (HECM) program.

“While Congress extended the reverse mortgage option to co-op owners through the Housing and Economic Recovery Act of 2008, HUD has not issued the regulations needed to execute this section of housing law,” Engel said in a written statement.

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Engel spoke to Secretary Castro on June 27 and followed up with a letter to the HUD chief, urging him to issue regulations so that co-op owners can also take advantage of HECMs.

In his letter, Engel stresses the point that Congress has allowed individuals who own units in a residential cooperative housing corporation to participate in the HECM program through language included within the HECM statute.

Specifically, the statute states, “The term ‘mortgage’ means a first mortgage or first lien on real estate, in fee simple, a first or subordinate mortgage or lien on all stock allocated to a dwelling unit in a residential co-operative housing corporation, or a first mortgage or first lien on a leasehold…”

“Despite Congressional action on this issue, and the considerable benefits that this program could bring to older co-op owners, HUD has not yet issued regulations to implement this portion of the statute,” Engel wrote in his letter to HUD. “I am writing to request that HUD expedite this process and issue these needed regulations as soon as possible.”

Efforts to expand reverse mortgage access to co-ops have been underway for the better part of the last two decades, with not-for-profit organizations and members of Congress spearheading initiatives to push HUD into changing its regulations.

Housing co-ops account for a large population of seniors, particularly those living in New York City, the co-op capital of America. Although approximately 30% of all housing in New York City is cooperative, according to the National Association of Housing Cooperatives (NAHC), age-eligible seniors living in these developments have been largely shutout of the ability to tap into their housing wealth using a reverse mortgage.

Part of the issue resides in the fact that there isn’t real estate to collateralize reverse mortgages in a co-op, since co-ops are considered personal property and not “real” property. Rather, co-op dwellers own shares in the corporation that owns the building in which they live. As shareholders, residents are entitled to exclusive use of a housing unit in the property.

Engel is the most recent Congressman to press HUD for changes to its HECM rules as they apply for co-ops. In February 2015, Congressional members Carolyn B. Maloney (D-NY) and Rep. Denny Heck (D-WA) challenged HUD about co-op eligibility during a lengthy hearing.

“Co-ops account for a large population of New York City’s seniors,” Maloney said, addressing Secretary 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 this question at a later date. Since then, HUD has remained firm in its stance of not permitting co-ops to become eligible for HECMs.

During a meeting with NAHC officials this May, HUD officials said there would not be any new guidelines for HECM reverse mortgages in housing co-ops.

“The door is open for further discussions for how standards could be tested, but they [HUD] were firm in saying there wouldn’t be guidelines for HECM reverse mortgages in co-ops,” said Mary Ann Rothman, executive director at the Council of New York Cooperatives & Condominiums, who was present at the meeting between HUD and NAHC.

Expanding reverse mortgages to co-ops doesn’t appear to be on HUD’s agenda for the HECM program right now, but lawmakers and co-op advocacy groups aren’t giving up the fight just yet.

“Reverse mortgages are a valuable tool for older Americans,” Engel said. “Through the HECM program, homeowners can put the equity in their home towards medical care and other major living expenses. It just makes sense that those who own co-op units ought to be afforded this option. I hope HUD will act quickly to carry out this section of the law, as Congress intended, and allow co-op owners to realize this significant benefit.”

Written by Jason Oliva

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    • Raymond,

      I would rather have no HECMs on coops than to suffer the losses this property type could heap on the MMI Fund. Coops are personal property, not real estate.

      Unlike the forward industry where risk is normally reduced the longer that the loan is both performing and aging, as to aging, HECMs are just the opposite when it comes to slow growth asset types.

      The collateral and recording rules on personal property are much different than on real estate, causing personal property to have more risks associated with it than with real estate.

      HUD is right to ignore HERA.

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