Carson: HUD Has ‘Made Tremendous Progress’ on Reverse Mortgages

Responding to a question about the general health of the Federal Housing Administration’s finances, Ben Carson pointed to recent improvements to the reverse mortgage program during a Congressional hearing this week.

“We’ve made tremendous progress in terms of reverse mortgages, in terms of PACE loans, and putting the taxpayer in the right position,” the Housing and Urban Development secretary said during a hearing before the House Financial Services Committee on Wednesday.

Carson lumped Home Equity Conversion Mortgages in with the PACE program, which provides financing for energy-friendly property upgrades; the FHA stopped insuring mortgages associated with those loans late last year, citing concerns about higher risks of default and strains on the Mutual Mortgage Insurance Fund.

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The secretary trumpeted the fact that the MMIF exceeded its 2% capital reserve requirement for the last fiscal year, despite a bleak outlook for the HECM portion of the fund. The federally backed reverse mortgage program was responsible for a negative $14.5 billion strain on the MMIF, according to the most recent actuarial report on the health of the fund, and HUD officials have pointed to those results as a justification for the decision to lower principal limit factors and adjust the insurance premium structure for reverse mortgages.

“Reverse mortgages have been kind of a sore spot for you, have they not?” Rep. Blaine Luetkemeyer, a Missouri Republican, asked Carson during the exchange.

“It has been. Of course, when [the program] was put in place, people meant well, allowing seniors to age in place — but the appropriate standards were not set in terms of the amount of money that could be withdrawn, etc., and looking after surviving spouses,” Carson said in response. “All of those things have been addressed, and we continue to make excellent progress in that area.”

Carson also mentioned the recent confirmation of Brian Montgomery as FHA commissioner as a step forward for the department; Montgomery’s nomination had been held up for months before the Senate finally signed off with a 74-23 vote in May.

“We’re very grateful that we finally got [an] FHA commissioner,” Carson said. “He’s been in place for almost a month now, and that makes a very big difference.”

Written by Alex Spanko

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  • The following is an interesting sentence from above: “The federally backed reverse mortgage program was responsible for a negative $14.5 billions strain on the MMIF, according to the most recent actuarial report on the health of the fund, and HUD officials have pointed to those results as a justification for the decision to lower principal limit factors and adjust the insurance premium structure for reverse mortgages.”

    In examining the actuarial review for fiscal 2017, nowhere is the amount of “a negative $14.5 billions” mentioned. One does find the amount of a “negative $14.5 billion” presented on Page 6 of the Annual Report to Congress on the Financial Status of the MMIF (Mutual Mortgage Insurance Fund) for the fiscal year 2017. The sentence where that amount is found states: “HECM portfolio stand-alone highlights include: …The HECM portfolio has an Economic Net Worth of negative $14.5 billion.”

    While some find precision, correct citations, and other matters of accuracy too onerous to include in their writings, there is a question of reasonableness that arises. If ML (Mortgagee Letter) 2017-12 was posted on August 29, 2017, how can the decision found in ML 2017-12 have been based on an amount that could not have been determined before October 1, 2017, which was 34 days later than August 29, 2017?

    While I fully agree with the decision and the rationale that the value of the HECM portfolio in the MMIF could be reasonably estimated as severely negative by the end of August 2017, I find it hard to believe that anyone including HUD officials could predict that the value of the portfolio would be a negative $14.5 billion as of September 30, 2017 at any time on or before August 29, 2017. The claim becomes even harder to accept when that amount is claimed to have been found in some unknown 2017 actuarial REPORT.

    Then it is further claimed in the sentence in question that just ONE actuarial report for fiscal 2017 covers the health of the entire MMIF. If there is such a report, the citation of its location would be helpful. Does such a report exist? Absolutely not.

    While few enjoy being held accountable, inaccuracies seem too readily accepted by readers. Those providing the 2017 HECM Actuarial Review were independent, third parties to HUD; however, the authors of the 2017 Annual Report to Congress were not independent, third parties to HUD since that report was prepared and posted by HUD.

    At face, it is very hard to believe the sentence first quoted from the column even though it is highly likely that some at HUD are making illogical claims. Even in the industry, some promote reasons for decisions after the fact which with 20/20 hindsight are as easily and effectively challenged as the quoted sentence above.

  • I found my friend Jim Veal’s comment very interesting and factual. Especially the part about HUD officials being able to predict the value of the portfolio being a negative $14.5 billion as of September 30, 2017!

    I have questioned, ever since October of 2017, why the PLF had to be adjusted downward by the amount it was. This was the main reason for the major hit on the market, not the leveling off of the IMIP to 2%!

    The recent confirmation of Brian Montgomery as FHA commissioner is a step forward for the department. It was to bad Montgomery’s nomination was been held
    up for months before the Senate finally sign off on it!

    I am optimistic that Montgomery will make a positive contribution to the reverse mortgage part of FHA. I feel we will see some rollback eventually on the PLF. We may not get it all back but I would at this point in time, settle for 50% of it back in the hands of our seniors!!

    Once again, I commend Jim Veale on his comment on this article. You can tell Jim did his homework on this one!

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

  • Well, twice, Secretary Carson cited the lowering of the PLF as a place to “hang his hat” with regard to “tough questions” about the financial health of the HECM program. So, it doesn’t seem that the PLF is going “back up” again any time soon.

    If the answer to “Why is the HECM in bad shape?” is: “Past administrations miscalculated, but we took action and lowered the PLF,” then HUD isn’t about to let-go of that a$$-covering “out” too easily.

    It’s can-kicking if it’s without even mentioning how the PLF affects the borrowers’ interest in the program. To blow it off as “the borrowers were getting too much cash out of the deal in the first place,” is contemptible. To posture as “all-knowing” of what needs to be done to improve the situation is irresponsible.

    For example. I have a HECM post FA and pre “October Change.” I’m close to the max as it is at present, but in the future, I can’t get another refi without dumping the favorable Value to Loan terms. That’s a problem that shouldn’t exist.

    I also can’t use the H4P program for the same reason; a new contract puts me in the realm of the unattractive “October Change” PLF terms that Secretary Carson thinks is so brilliant a move for HUD. That’s a problem that shouldn’t exist.

    His reply to congress should have been: “Yes, it’s a disaster and we need a strategy.

    • Thanks for sharing that. Now I understand why you so ruthlessly attack the decision to lower PLFs. The following two paragraphs quoted from your comment says a whole bunch.

      “I have a HECM post FA and pre ‘October Change.’ I’m close to the max as it is at present, but in the future, I can’t get another refi without dumping the favorable Value to Loan terms. That’s a problem that shouldn’t exist.

      I also can’t use the H4P program for the same reason; a new contract puts me in the realm of the unattractive ‘October Change’ PLF terms that Secretary Carson thinks is so brilliant a move for HUD. That’s a problem that shouldn’t exist.”

      HUD has a history of changing HECM PLFs from one year to the next since 10/1/2009. It is too bad you were not fully made aware of that when you got your HECM. Some claim another drop in PLFs could be in the cards. Until they can test the bottom of the MMIF losses, these tests to the bottom could continue.

      I hope you had a great 4th last week.

      • Past drops in the PLFs weren’t really indications that would prepare anyone to anticipate the dramatic level of the October Change PLF decrease. It’s a decent deal as-is, as long as I don’t change it.

        I think the drop in the PLF that came with the October Change was a bad idea for several, mostly obvious reasons, and I used my own situation as an example, but not a motive for my opinion.

      • We all know you are as pure as the driven snow.

        Oh come on, Ed. If your own situation was not a conscious motive, certainly it was an overwhelming unconscious one. Don’t even try to kid a kidder.

        What do you mean by: “It’s a decent deal as-is, as long as I don’t change it?” Are you talking about your HECM or HECMs generally? If your own, that comment can easily be expanded to hundreds of thousands of other HECM borrowers as well.

        I hope you had a great weekend.

      • Maybe you have trouble reading. I used my situation as an example for what is obviously an “industry wide” problem.

        Obviously, if I currently hold the pre October Change terms, a now, post-October Change refi or H4P is going to put me in the degraded, post-October change PLF situation. This would be the same for any HECM borrower who currently holds the pre-October Change contract-terms.

        Where do you get this cheap, “pure as the driven snow” snark out of that?

      • Mr. McSherry,

        Yours is but one situation.

        Others have lower valued homes in high appreciation rate areas (such as Denver, CO and Bellevue, WA) and with time, their potential future principal limit could substantially exceed the balance due on their current HECM. While the future PLFs may remain low, we can sell what we have at that time.

        It is far more important that the HECM program not stay a money pit for the MMIF than some groups of seniors get the HECM they think HUD promised to keep in place for them which, of course, is not the case. Cutting PLFs further is a logical step in bringing the MMIF into line.

        If your suggestion can be implemented without further losses to the MMIF, it has my support but I cannot find any empirical evidence that MMIF losses will decrease if PLFs are increased.

        Further it is highly unlikely that Congress would sit idly by and allow changes to the HECM program that will cause the entire MMIF to go negative. But mine is not the last word on this subject.

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