HUD Secretary Gives HECM Update to Senate, House HECM Hearing Nears

On the heels of a housing proposal including major reverse mortgage program overhauls, HUD Secretary Dr. Ben Carson stressed the Home Equity Conversion Mortgage issues in prepared remarks Tuesday. This, as the House of Representatives prepares to convene a hearing later this month specifically centered on the HECM program.

Carson’s remarks, prepared for a Senate Banking Committee hearing on housing finance reform, reiterated the program changes, despite not being delivered in person during the live hearing.

In the Tuesday hearing, titled “Housing Finance Reform: Next Steps,” Carson was joined as a witness by Secretary of the Department of the Treasury Steven T. Mnuchin and Dr. Mark A. Calabria, director of the Federal Housing Finance Agency (FHFA).

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While the majority of Secretary Carson’s filed opening statement dealt with other issues related to the Trump Administration’s housing finance proposal, he did specifically highlight some of the ongoing issues which have afflicted the HECM program over the past several years. Carson’s statement was divided into four “pillars,” which cover all of the proposals’ intents.

The relevant elaboration on the HECM program was listed under the second pillar of “protecting American taxpayers.”

Reiterating the aim of proposed program changes

“The HECM program, which has supported millions of American seniors to ‘age in place,’ has suffered significant financial distress in recent years. At the end of FY 2018, FHA’s HECM portfolio had an economic net worth of negative $13.63 billion and a standalone capital ratio of negative 18.83 percent,” Carson wrote. “Financial volatility within the HECM program remains a constant challenge for FHA, despite changes to the program’s principal limit factors and insurance premiums in 2017, and the implementation of an appraisal inflation risk mitigation policy in 2018, both of which have been directionally positive on the program’s fiscal solvency.”

In emphasizing a desire to return the HECM program to financial viability, Carson’s statement further emphasized what the proposed program changes hope to accomplish going forward.

“First, HUD recommends Congress reform the loan limit structure in the HECM program to reflect variation in local housing markets and regional economies across the U.S. instead of the current national loan limit set to the level of high-cost markets in the forward program,” Carson wrote. “Second, HUD proposes Congress set a separate HECM capital reserve ratio and remove HECMs as obligations to the Mutual Mortgage Insurance Fund (MMIF) — reforms that would provide for a more transparent accounting of the program costs and decrease the cross-subsidization that occurs with mission borrowers in the forward mortgage portfolio.”

Finally, Carson reiterated that HECM-to-HECM refinance transactions “result in greater appraisal inflation, increasing program costs, and negatively impacting GNMA guaranteed HECM MBS (HMBS) due to quick ‘churn’ in pool participations,” he wrote, justifying the proposal for FHA to remove such transactions.

HECM absence, upcoming House hearing

In the actual hearing, Carson elected not to verbalize the specific section of his statement related to the HECM program. Additionally, none of the verbal testimony, either from the cabinet officials serving as witnesses or from the committee’s member senators, contained any discussion or dialogue concerning the HECM program.

However, later this month the House of Representatives’ Financial Services Committee will be conducting a hearing specifically to discuss the HECM program titled, “Protecting Seniors: A Review of the FHA’s Home Equity Conversion Mortgage (HECM) Program.”

A witness list for the House hearing has yet to be released, though it should provide a substantive perspective concerning the political support and/or opposition that national politicians maintain concerning the reverse mortgage program. The hearing is scheduled for September 25.

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  • The exaggerations about the HECM program put out by HUD recently are startling. The current example from above is: “‘The HECM which has supported millions of American seniors to ‘age in place’…'”

    The number of seniors who are borrowers is less than 1.6 million. The number of HECMs endorsed to date are less than 1.15million. We have a long ways to go to get to millions.

    Chris Clow in his September 5, 2019 article on Trump’s Housing Reform Plan quotes the following from the document: ““Despite a significant increase in volume in both the forward and reverse mortgage programs, FHA’s Office of Single Family Housing staff has decreased from 1,007 full-time employees (FTEs) in 2010 to 751 FTEs as of August 2019….”

    I am sure that the author believed what is written; however, as to reverse mortgages it is wrong. There about 140,000 active HECMs today than in 2010. Also the number of endorsements for fiscal 2019 is expected to be about 60% lower than total endorsements for fiscal 2010. So how is the quotation true?

    While some see publishing such facts as troublesome, they are simply facts that demonstrate that those who write policy about HECMs are not knowledgeable about the day-to-day issues HUD faces. At to HUD, staffing is probably may be slightly low especially since all properties assigned to HUD are handled by Novad its servicer.

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