Earlier this month, new Federal Housing Administration commissioner Brian Montgomery laid the blame for troubles in the reverse mortgage industry on back-end issues at his own department.
The new commissioner, confirmed in May, inherited a Home Equity Conversion Mortgage program that caused a $14.5 billion drag on the Mutual Mortgage Insurance Fund (MMIF), according to the most recent analysis. Department of Housing and Urban Development officials explicitly cited those numbers when discussing the lower principal limit factors instituted last fall, and Montgomery indicated that his department isn’t done attempting to root out the issues behind those bleak numbers.
“We are digging deep in the portfolio to find out of the problem is on the front end or the back end,” Montgomery said on a call with reporters. “My sense is that it’s more on the back end in terms of the losses we are experiencing. Part of ‘triaging’ is [determining] why that is happening.”
But Montgomery, a longtime defender of the HECM program, also emphasized that he wanted to find a “tipping point” between taking further actions that could hurt reverse mortgage volume — which is currently at its lowest monthly level since 2005 — and ensuring that the HECM portfolio returns to a more stable footing within the MMIF.
With that focus in mind, RMD set out to ask reverse mortgage industry professionals how they would rectify FHA’s back-end issues to bolster the Home Equity Conversion Mortgage program without further principal limit factor cuts.
Christopher Mayer, CEO of lender Longbridge Financial, said the FHA and the Department of Housing and Urban Development could start by providing more Cash-for-Keys options, which allow lenders to speed up the foreclosure process by offering cash incentives for homeowners in default to vacate their properties.
“An expanded Cash for Keys program would offer the potential to lower losses by avoiding costly foreclosures while giving seniors facing financial or health troubles the resources to move elsewhere for a fresh start,” Mayer told RMD.
National Reverse Mortgage Lenders Association executive vice president Steve Irwin placed a similar emphasis on Cash for Keys, which officially came to the reverse mortgage program with the introduction of the HECM Final Rule last fall.
“In our ongoing conversations with HUD and the Hill, we continue to emphasize the need to improve property disposition efficiencies, post-assignment,” Irwin told RMD. “One change that we believe would be within the agency’s power to make fairly quickly would be to extend the cash for keys program to the entire book of HECM loans, as opposed to only loans closed after the new HECM rule went into effect.”
Concerns about what happens to loans once they are assigned to HUD have been a primary theme in the reverse mortgage space, especially amid sharp rises in the number of loans reaching 98% of their maximum claim amounts (MCA). Once those seasoned loans are handed off to the FHA and its contract servicer, Mayer said, they tend to “lose substantial value.”
“It may be possible to develop programs to utilize current servicers who now cost-efficiently service existing loans to continue servicing beyond the 98% threshold,” Mayer said.
Mayer also pointed to suggestions from the Urban Institute on how to streamline the FHA loan assignment process, including the expansion of alternative disposition methods such as third-party or pre-foreclosure sales, and updating the FHA’s foreclosure rules to ease the burden of costly penalties for missing deadlines.
“The FHA’s foreclosure timeline and property conveyance processes result in avoidable delays, costs, and losses for HUD and servicers,” the Urban Institute researchers concluded in their report on FHA improvements, released in February. “These costs are eventually passed on to neighborhoods and consumers in the form of slow property resolution, depressed property values, and reduced access to credit for future borrowers.”
It’s not just an academic issue: Irwin noted that the Senate Appropriations Committee called on HUD to update its post-assignment process in its fiscal year 2019 report.
“Brian Montgomery and Congress have now both acknowledged that reforms to the back end of the HECM loan process can improve program performance and mitigate losses to the MMI Fund,” Irwin said.
David Peskin, president of Reverse Mortgage Funding, said it’s also up to players in the reverse mortgage space to work on the issue with government officials.
“We do believe that there are some issues on the back end, and that the industry is going to be working closely with FHA to develop solutions that will hopefully fix this product once and for all,” he told RMD.
Written by Alex Spanko