Former FHA Commissioner Offers Ideas on Rebuilding Reverse Mortgage Program

Following the annual release of the Federal Housing Administration’s annual report to Congress on the status of the agency’s insurance fund this year, opinions abound about the sufficiency of recent reverse mortgage program changes and the state of the fund going forward.

One opinion that emerged following the report release was that of former FHA commissioner and former Mortgage Bankers Association president and CEO David Stevens.

Stevens, who served as commissioner from July 2009 to March 2011, offered commentary in response both via LinkedIn and other outlets, including an assertion that the reverse mortgage program should be rebuilt from scratch. RMD spoke with Stevens by phone to learn more about his ideas for reshaping the program.

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For starters, Stevens said, the ideal of a credit requirement and residual income test needs to go further than it does with the current financial assessment that is required of all loans.

“The idea of being able to pull equity out of your home to live on is a great idea,” he told RMD. “The fact you don’t have to make a mortgage payment should be available for seniors without income to take advantage. How do you make it sustainable? You put a qualification process in place… I don’t think [the current requirement] goes far enough.”

During Stevens’ tenure at FHA, the agency created the HECM Saver, an adjustable rate product with lower upfront fees and a lower draw percentage, but the product eventually was eliminated.

The Saver was designed to offer an alternative to the full-draw fixed rate offering, but the execution was lacking, Stevens said.

“For a loan originator, it wasn’t in their best interest to do a partial draw,” Stevens said. “Second, because it was a new product, it [required] its own securitization and we weren’t able to create a mortgage-backed security market to have it trade as well as the regular HECMs were trading… it turned out that it was a Band-Aid.”

Where to go from here

While there may not be a quick repair to the reverse mortgage program, there is action needed, Stevens stressed in his comments.

“I’m not the end all be all person who knows what needs to be done,” he said. “But it’s plain to see when the review comes out that the program is losing billions and it’s proven that HUD has never been able to project it accurately.”

Recent changes have been effective, he said, crediting the work of Commissioner Brian Montgomery, who took the post in May. Most recently, Montgomery has spearheaded change in the form of a second appraisal required for some borrowers—a process aimed at stemming losses related to appraisals.

“We need good common sense objective rules and regulations,” Stevens said. “Not crazy ones, but we need good rules. I think we should get some good policy stakeholders—HUD could hold a summit, with an advisory panel to look at the program, gather financial expertise, housing experts, seniors and more, to analyze the numbers and write the policy to protect the program.”

Some alternative suggestions might include incorporating family members as co-signers, or setting certain requirements that would relate directly to available principal limits, he continued.

“Ultimately they should change the PLF tables so there are more variables—credit worthiness, ability to sustain payments, maybe cosigners,” he said. “When you see a loss expectancy in the amount this is expected to see, it’s not something you piecemeal. It should be a primary objective.”

As for whether additional program changes are necessary, time is needed following the most recent changes to gauge their impact, said National Reverse Mortgage Lenders Association Executive Vice President Steve Irwin in an email to RMD.

“I believe that we need to have more production experience under the FY 2018 HECM program changes, and now with the recent FY 2019 HECM changes, before it can be properly determined if any additional front-end HECM changes may be required,” he said. “With that in mind, I do believe that expanding the Cash for Keys program to cases that were originated prior to the issuance of the Final Rule would help improve the program performance, as would other servicing related program changes.”

Written by Elizabeth Ecker