FHA Commissioner States Commitment to HECM, But Concerns Remain

The Home Equity Conversion Mortgage product remains a priority for the Federal Housing Administration, which is continuing to examine both originations and back-end processes in order to ensure the program is self-sustaining, according to statements delivered by Federal Housing Administration Commissioner Brian Montgomery during the National Reverse Mortgage Lenders Association annual conference in San Diego on Tuesday. The commissioner reiterated his department’s dedication to the program, noting that recent changes have been made to avoid additional cuts to principal limit factors and raising insurance premiums.

“I want to reiterate that we believe in this program,” Montgomery said. “It is good for many seniors and I believe it needs to be there in the long-term.”

However, the program’s negative impact to the FHA’s Mutual Mortgage Insurance Fund has led to the “annual ritual” of developing short-term fixes, including most recently a call for second appraisals on some reverse mortgage properties and more flexible documentation for servicers when filing claims with HUD. The changes are the result of research done by a HUD working group called for by Montgomery upon his confirmation earlier this year to identify ways to mitigate the HECM program’s losses to the insurance fund.

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“Last year [the program] drained $14.5 billion from the MMI fund and continues to be heavily subsidized by the forward book, so much that we were just barely above our mandatory 2% capital reserve ratio required by Congress at the end of the last fiscal year,” Montgomery said.

Major program changes instituted in October 2017, which consisted of increasing mortgage insurance premiums and reducing principal limit factors, were not enough to stem losses, so other measures needed to be taken to diligently manage FHA’s risk, he noted.

On the back end, the FHA has been working to improve efficiency for the cases that are re-assigned to HUD. Montgomery said staff has worked to clear out the backlog of these reassignments that were in place when he became commissioner.

“There are now only a handful of HECM assignment requests still in the backlog,” he said.

Another measure to improve the backend was to allow servicers to present alternative documentation when reassigning the case back to HUD to make the reassignment process easier for servicers. This was announced last week with Mortgagee Letter 2018-08.

“I believe these actions demonstrate our commitment to making it work,” he said.

Montgomery re-emphasized that the appraisal changes were less impactful to the program than other proposals — like further reducing PLFs or raising mortgage insurance premiums. He also acknowledged that the changes are difficult for the industry to withstand.

“[The] changes were least impactful than other options on the table such as an increase in monthly premiums and additional cuts to PLFs,” he said.

While he said he couldn’t give many details, the commissioner noted that the fiscal year 2018 MMI fund report would be published in the coming weeks, with more work needed to be done to help the HECM program.

“Changes FHA made to the PLFs and MIP were designed to help but did not fully solve for the financial volatility and this we must solve for if the program is to continue in the long term…Our goal was to stop the bleeding and improve the viability and sustainability of the program. We are dedicated to bringing this program to a level of self-sufficiency.”

Written by Maggie Callahan