With less than 24 hours remaining in the comment period for the Federal Housing Administration’s latest round of proposed changes to the Home Equity Conversion Mortgage (HECM) program, the National Reverse Mortgage Lenders Association (NRMLA) formally voiced its concerns in a 30-page document sent to the Department of Housing and Urban Development (HUD).
Weighing in hours before the comment period close of Monday, July 18 at 11:59 p.m. (ET), NRMLA sent a notice to its members Monday afternoon regarding its submission of the 30-page document.
In its comments, NRMLA commended the efforts of FHA for its continued work to support and implement the HECM program, while also cautioning the agency of the unintended consequences of some of its proposals.
“We also commend the FHA for both the thoroughness, and the breadth and depth of its Proposed Rule” the letter states. “However, given both the extent and the complexity of some of the proposed changes, we urge the FHA to proceed with further deliberation as it finalizes the Proposed Rule.”
Similar to other reverse mortgage industry stakeholders, NRMLA also raised concerns about the proposed rate caps on adjustable-rate HECMs.
“We cannot support the capping of the periodic interest rate increases and decreases on the Annual Adjusting HECMs at 1% (moving the cap down from 2% to 1%), nor can we support capping the lifetime interest rates on the monthly adjusting HECMs at 5%,” NRMLA writes. “These proposed caps create significant liquidity and issuer risk in an already delicate HECM market.”
The trade group cites a recent poll it conducted among HECM mortgage-backed securities (HMBS) investors, which delivered a “nearly unanimous” response that the appetite for the adjustable rate product under the proposed caps, would be “greatly diminished, if not eliminated.”
The poll results echo similar sentiments from other secondary market participants who warn that such interest rate caps would lead to a certain doom for the sector.
“The industry has relied on a small and fragile base of investors, and the proposed changes would create a flight away from this market,” NRMLA writes. “Such a flight of the traditional HMBS buyers would create adverse liquidity shocks to the HECM secondary market, which would in turn create issues with the industry’s ability to offer and service the product.”
NRMLA also voiced concerns with FHA’s proposal to require prospective borrowers for HECM for Purchase (H4P) transactions to complete the required HECM counseling before signing a sales contract or making an earnest money deposit—instead of allowing them to complete counseling before or after the initial application is submitted to the mortgagee.
“It is not commercially plausible for HECM counseling to occur before a consumer enters into a contract to purchase a home or makes an earnest money deposit,” NRMLA writes. “We recommend that FHA maintain the current practice and policy which requires counseling before a formal application and expenditure of funds.”
The Association also suggests that FHA improve the H4P program such that the Certificate of Occupancy should be made a closing condition requirement, and not required to be issued prior to a senior applying for an H4P loan.
Issues with the proposed interest rate caps on adjustable-rate HECMs and concerns regarding the HECM for Purchase program are just two areas of deliberation NRMLA presses FHA to consider, among many more.
Written by Jason Oliva