Recent changes to the reverse mortgage program are helping to ease the strain on the Mutual Mortgage Insurance Fund, Department of Housing and Urban Development Secretary Ben Carson told Congress on Tuesday.
“I think it has largely stemmed the tide in terms of the disaster that was occurring there,” Carson said during testimony before the House Appropriations Subcommittee on Transportation, Housing, and Urban Development. “But we were draining from the MMIF $12.5 billion over a nine-year period. That was ridiculous.”
The secretary was responding to a line of questioning from Rep. Mario Diaz-Balart, a Florida Republican who cited recent statistics showing a significant increase in Home Equity Conversion Mortgage foreclosures and defaults.
“I’m frankly a little concerned about that program, and I want to work with you to dive into it and make sure that our seniors are protected,” Diaz-Balart, who represents the Miami suburbs, said during the hearing. “I’m not sure if those default rates or actually accurate or not. Supposedly there are huge numbers of seniors defaulting, which is obviously something that is unacceptable. Those are folks that have to be protected.”
Carson validated the representative’s concerns.
“The people who put the program together had very good intentions, but they didn’t put it together very well, so we inherited a mess,” he said.
HUD officials specifically cited the drains on the MMI Fund when introducing lower principal limit factors and updated mortgage insurance premiums last fall. At the time, the most recent actuarial report showed that the HECM program had an economic value of negative $7.7 billion; later in the year, the fiscal 2017 report showed that number had ballooned to negative $14.5 billion.
The secretary did not specifically indicate the origin of the $12.5 billion number he mentioned in his testimony, but the fiscal 2016 actuarial report estimated the future economic value of the HECM portion of the MMI Fund to be $12.5 billion by fiscal 2023.
Though the new rules went into effect for loans with case numbers assigned on or after October 2 of last year, Carson indicated that the updates were already bearing fruit.
“We understand the problem and are dealing with it very effectively,” he said.
There has been some controversy in the industry over the validity of the foreclosure numbers that Diaz-Balart referenced. Last November, a pair of nonprofits released the results of a Freedom of Information Act (FOIA) request that showed HECM foreclosures spiking 646% in 2016.
But National Reverse Mortgage Lenders Association president and CEO Peter Bell said the vast majority of foreclosures consist of property transfers initiated upon the death of the last remaining borrower, and not situations in which living seniors are being evicted from their homes. In addition, Bell pointed to new guidance from HUD as a reason for any increase in tax-and-insurance defaults.
“The number of tax and insurance default foreclosures rose dramatically after HUD enforced policies to call those loans due and payable,” Bell told RMD in a statement in February, chalking up the perceived foreclosure surge to “misleading data analysis.”
Carson appeared before the committee to discuss the fiscal year 2019 HUD budget, which the Trump administration has sought to cut substantially. Still, Carson laid out plans to completely overhaul the department’s information technology structure, funded in part by a new $25-per-loan fee assessed to all Federal Housing Administration lenders.
“We have to get the IT systems at FHA up to par. We are putting a lot of money and a lot of people in jeopardy by continuing this,” Carson said of the department’s aging computer systems, which costs hundreds of millions of dollars a year to simply patch.
HUD’s systems withstand 2,000 to 3,000 hacking attempts per week, Carson told the subcommittee, further driving the need for a unified, modern internal system.
The secretary also faced questioning over his office’s purchase of a $31,000 dining room set, which he cancelled after a public backlash. He continued to deny foreknowledge of the outlay, despite reporting that asserted the contrary, and reiterated that he had little interest in lavish furnishings.
“I’m not really big into decorating. If it was up to me, my office would probably look like a hospital waiting room,” Carson said.
Carson additionally blamed a lack of support staff on the failure of internal spending controls, and pointed to HUD’s recently announced push to cut down on waste and improve its spending processes.
Written by Alex Spanko