Because of the government-insured nature of the Home Equity Conversion Mortgage (HECM) program, many of the biggest and most influential changes to it come from the federal government, specifically the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).
The possibility of new HECM program changes was one of the topics that was discussed in an interview between RMD and FHA Commissioner and Acting Deputy HUD Secretary Brian D. Montgomery during the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting last month in New York City.
In this second and final part of the interview – which can be heard in its entirety now on the second episode of the recently-launched RMD Podcast – the Commissioner discusses what the future could hold when it comes to potential changes in the HECM program that may still be coming, and reflects on the reasoning behind his positive feelings toward the reverse mortgage program at-large, and the benefits it can provide to American seniors.
A big one I want to ask you about is potential program changes. Do you see the program as having a stable position presently, or can the industry expect additional changes this year? If so, any hints as to what those changes might look like if they’re on the table?
Over the last two years, and even in the administration before us, this annual ritual of [asking] what’s going to be the principal limit factor or what are premiums going to be, we know that that’s not easy on the industry. We know that if you’re going to do something like that on the forward side of the book, I can only imagine the groans that I would hear. So, again, I appreciate the resiliency of the industry, and they know what we have to do every year. Our triage never really ends, to be perfectly honest.
So, we’re in the process of doing the modeling, running the actuarial tables, looking at claims. Being able to clear out that [HECM] claims backlog, as I’ve said before, we trained 100 HUD staff to learn how to do these claims so we could clear out that backlog, which we did earlier this year. And then, during the shutdown, it built up again and then we brought it back down again. So, knock on wood, we’re caught up right now. But, that’s not been helpful either, recognizing that it takes forever to get these claims processed. I know it’s put considerable strain on a lot of HECM servicers.
So, it’s too early to say where we are in the process, except [that] it’s ongoing. Right now we’re in mid-May, so I think we’ll have a better idea probably in two months in what direction we’re going to have to go. I’m sure the industry would welcome what I’ll call a ‘return to normalcy.’ (laughs) And again, we’re going to do our best to stave off any further cuts to the principal limit factor, and stave off any potential premium increases. But, today it’s just too early to make that judgment call. We’ll see where that takes us in the next few months.
Last question, because I’ve heard a lot about how people really believe that you are a friend to this program. I wanted to know the source of that, just because I don’t know if I’ve ever heard you talk directly on the record about it before. You’ve spoken positively in the past about your general perspectives on it, but where do your positive feelings on HECM come from?
That’s an extremely good question, I’m not sure anyone’s ever asked me that. Part of being FHA Commissioner is I have a lot of programs dedicated to extremely low income families, whether it’s project-based rental assistance, the housing choice voucher program, the section 202 program which is designed to help frail elderly [people], mostly females, and the section 811 program which helps persons with disabilities. All told, those programs help 4-and-a-half million families. So, I think part of it is seeing the visibility into serving those cohorts who, many of them were never homeowners or will never be homeowners.
I think there’s a government product that takes the best of the private sector and the public sector, it’s a product offered through private or publicly-traded corporations. The borrower pays for the assistance, if you will, through premiums. The government’s there to help provide the product. Not only do I think that’s a good construct, but one that helps seniors do what they all want to do, and that’s age in place as long as they can. I think it’s good for our economy, and good to help seniors do what they want to do.
That said, obviously it’s suffered from a lot of ripple from the housing market collapse, which just evaporated home price appreciation in many markets, including markets where HECMs were prevalent. Even though reverse mortgages had absolutely nothing to do with the housing market collapse, nor did FHA. We nonetheless felt the sting of the extreme drop in home prices. In many cases, for HECM products we’re taking them originally when the home value was [much higher] and a couple years later, sometimes even less, the values dropped 30, 40 or 50 percent. So, coupled with all the other issues, we got to a place where we didn’t necessarily want to be.
But again, improvements made in the last administration on into this administration had put it on firmer footing. Look, I do care about the product. Again, it’s not for every senior or for every circumstance. I think it’s important that seniors, through housing counseling that in many cases is provided through our network, it’s important they know all the pros and cons of the product. And, quite frankly, it’s important that the adult children of seniors understand that, as well. You’re younger than I am, and I’m sure at some point you’re going to have that discussion with your parents about [how they] want to live out their years. As you’re looking through your retirement planning, why shouldn’t you be able to tap into the equity that you’ve built in your home?
And, I think the industry also has done its part in terms of some of the advertising and marketing of the program, which I think has maybe had some more appeal to some of the older children of senior citizens. Some of the pitchmen, people had different opinions about them, we’ll say. (laughs) They ran the gamut of former Hollywood actors. But, it sort of got caught with some of that stigma, if you will, fairly or unfairly. I think they’ve made some deliberate turns in the industry in terms of their marketing and using some focus groups to help determine how best to market to seniors. Again, the resiliency of the proprietary product, I think, will show that.
The Congress passed the law that created the product. We’re in charge of providing it, we’ll continue to do that while making sure we ensure its long-term viability, hopefully it’ll be around for years and years and years. Seniors, you heard my statistics [in my presentation]: there’s a lot of them out there, and the numbers aren’t shrinking. [Perhaps] they’ll understand that this reverse mortgage product [is worth looking into].
It’s insured by the U.S. government, allows [them] to age in place, and I think as more seniors and their adult children become aware of that, I think that’ll be a good future for the product. Whether it’s just us, or proprietary products, or both.