Former FHA Head Joins Calls for Reverse Mortgage Separation

Count Carol Galante among the growing chorus of housing experts who believe the federally backed reverse mortgage program should be separate from the Federal Housing Administration’s other loans.

Speaking at an Urban Institute event in Washington, D.C. last week, Galante — FHA commissioner in the Obama administration from 2011 to 2014 — recommended splitting the administration’s capital reserves into two separate units for the forward and reverse programs. Galante also recommended removing the Home Equity Conversion Mortgage program from the capital reserve calculation entirely, according to presentation slides associated with Galante’s remarks.

Now the faculty director of the Terner Center for Housing Innovation at the University of California, Berkeley, Galante echoed current Department of Housing and Urban Development and FHA staffers in emphasizing what she characterized as the agencies’ core mission: Helping first-time and lower-income homebuyers achieve their goals.

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That was the reasoning HUD officials gave in September when announcing lower principal limit factors and overhauled mortgage insurance premiums, accusing the HECM program of taking resources away from the department’s primary beneficiaries.

A series of gloomy actuarial reports have compounded the calls for change at FHA, with the most recent report showing the HECM program with an economic value of negative $14.5 billion in fiscal 2017 — a significant increase from the already high negative $7.7 billion in the previous fiscal year.

“The HECM program has been a substantial net economic drain on the MMI fund, which is why we made these changes,” general assistant secretary for HUD’s Office of Housing Dana Wade said back in November.

Several other experts in the field have advocated a split of FHA’s forward and reverse programs, including fellow Galante panelist Laurie Goodman of the Urban Institute, Mortgage Bankers Association president David Stevens, and current HUD secretary Ben Carson.

“I think that’s a very worthy thing to pursue,” Carson said during a hearing before the House of Representatives in October. “We’re looking at, just over the last year, $7.7 billion out of the MMI because of HECM. The changes that we’ve made as of this month, and all the [loans] that will be going forward from this point, I don’t think we’ll have that problem.”

“But we’ll still have that residual problem. So yes, I believe that would be a worthy pursuit,” Carson continued.

Other reforms sought

Galante laid out a variety of other suggestions for FHA reforms, including capping maximum loan limits at 100% of the median home price in specific regions, instead of the current 115%, and using smaller jurisdictions — such as ZIP codes and U.S. Census tracts — to determine the median figures.

She also suggested that the should FHA have certain “emergency powers,” such as the temporary suspension of FHA insurance programs, and potentially restrict the administration’s lineup of products to purchase and refinance mortgages under normal economic conditions.

“FHA’s focus must remain on underserved populations while also continuing to serve a broad spectrum of lower-wealth homebuyers,” Galante’s presentation read. 

“FHA must have the tools and resources to manage its risks while executing its role and mission in the housing finance system.”

Written by Alex Spanko

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  • Hmmmmmm, wonder if they want the HECM to be around at all?

    “Suggestions for FHA reforms, including capping maximum loan limits at 100% of the median home price in specific regions, instead of the current 115%, and using smaller
    jurisdictions — such as ZIP codes and U.S. Census tracts — to determine the median figures”.

    What are they trying to do to the HECM??

    John A. Smaldone
    http://www.hanover-financial.com

    • That’s more concerning to you than this line?

      “She also suggested that FHA should have certain “emergency powers,” such as the temporary suspension of FHA insurance programs, and potentially restrict the administration’s lineup of products to purchase and refinance mortgages under normal economic conditions.”

      How would the industry survive if HUD placed a moratorium on endorsing new HECMs for a period of time? Would anyone have a proprietary product queued up and ready to go at that time that has comparable PLFs to HECMs?

      • Mr. Neumeyer,

        Just realize that Ms. Galante is not alone in suggesting that FHA be empowered to place moratoriums on endorsing new HECMs in periods where the HECM program cannot demonstrate or has not demonstrated its ability to meet minimum financial requirements. What we need is a clear message about why the fund is in the position it is and what the actuarial reports really mean. Unfortunately, few have a strong idea of what the reports mean or demonstrate.

      • “in periods where the HECM program cannot demonstrate or has not demonstrated its ability to meet minimum financial requirements”

        I don’t know how you define that? How do you know if the post-October 2nd book of business will be sustainable long term? You allow some auditors to make some negative projections with interest rate increases and slowing appreciation and call it a day? You can’t define it by the past books of business, because those losses will occur, no matter if there is a moratorium or not.

        We don’t even know if the 2013 changes would have worked on their own, nor if the FA changes brought in a higher quality borrower that has more incentive/ability to take care of their home. With the new PLFs, this is now three iterations of changes that haven’t been measured. I hope those in power at HUD have some patience and don’t ever put a moratorium in place.

      • Matt, You are right, no doubt about that! All we can hope for is they will come to their senses and start relying on their common sense?

        Take care my friend,

        John

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