Under new guidance set to go into effect October 2, Home Equity Conversion Mortgage borrowers will be able to tap into a smaller percentage of their home equity — while many will pay higher mortgage insurance premiums at the time of origination. And one former Department of Housing and Urban Development official says he’s concerned about the effects that the change will have on older homeowners.
“I’m very worried about elderly people who rely on the program, and the fact that it’s going to cost them more money to access what they can [from the] HECM, which really keeps them in their homes and allows them to get the value they need to do what they want to do,” former assistant HUD secretary Orlando Cabrera told RMD in a phone interview.
Cabrera, who oversaw HUD’s Office of Public and Indian Housing under the George W. Bush administration, said that unlike many in the industry, the new rules didn’t take him much by surprise.
“I’m surprised it’s a surprise,” said Cabrera, now a partner at the Washington, D.C. law firm of Arnall Golden Gregory. “We’ve watched Congress kind of tremble in fear of FHA’s exposure a couple of times over the last decade, and when you see the HECM world within HUD take on water, they’re going to react.”
In announcing the changes on Tuesday, HUD officials cited the $7.7 billion negative value that the HECM program brought to the Mutual Mortgage Insurance Fund in fiscal 2016, as well as the nearly $12 billion the department says HECMs have cost the fund since 2009. The officials warned that the fund would require an appropriation from Congress if action wasn’t taken immediately, leading to the higher premiums and lending limits.
A serious aversion to asking Congress for a bailout likely played a major role in the decision, Cabrera said.
“This is entirely related to the fact that there is such stress at HUD about going and asking for appropriations,” he said. “They’re trying to do anything they can to keep that from being part of the conversation, or at least minimize what they have to ask for.”
But Cabrera questioned whether or not these moves will help solve the problem of stress on the MMI fund, which even HUD admitted wasn’t necessarily the endgame; these changes will only help put future loans on a more solvent track, HUD officials said Tuesday, and not reverse any losses already on the books.
“I suspect there’s more at play than just HECM, because HECM’s not a massive amount of FHA’s overall portfolio,” Cabrera said. “It’s become a significant problem, but FHA is a lot bigger than HECM.”
In the end, while the regulations may not have a major effect on problems within the MMI Fund, they will have an immediate impact on seniors considering the program.
“Of all the populations that FHA serves, certainly the elderly is one of the most important of them, and this isn’t going to help them,” Cabrera said.
Written by Alex Spanko