Two New Reverse Mortgage Reform Bills Push for Program Change

On the heels of a House subcommittee hearing Wednesday on the Home Equity Conversion Mortgage program, committee members revealed two drafted reverse mortgage bills that move for program change.

The draft legislation, slated to be introduced by Democratic House members Denny Heck (Wash.) and Lacy Clay (Mo.), respectively, aim to address issues related to bolstering reverse mortgage borrower protections along with addressing the current national loan limit structure for Federal Housing Administration (FHA)-backed HECM loans.

Loan limit proposal

The draft bill from Rep. Clay, currently without a title, intends to “conform the maximum loan limit for reverse mortgages insured by the FHA to be consistent with the area maximum loan limits for FHA-insured mortgages, and for other purposes,” the draft reads.

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The key provision of the draft reads as follows:

“In no case may the benefits of insurance under this section for a mortgage exceed the maximum dollar amount limitation […] for a residence of the applicable size for the area in which the residence subject to the mortgage is located, as such limitations may be increased for properties located in Alaska, Guam, Hawaii, or the Virgin Islands.”

This draft echoes a recommendation for the HECM program previously made by members of the Trump Administration, which issued a series of proposals earlier this month that are designed to improve the health and standing of the HECM program within the Mutual Mortgage Insurance Fund (MMIF). Industry response to the proposal ranged from ambivalence to skepticism.

“[Regional lending limits] create more of a nationwide opportunity for ‘jumbo’ reverse mortgage offerings, whereas before those were heavily concentrated in a few states,” says John Lunde, president of Reverse Market Insight (RMI) in a previous interview with RMD. “It could easily lead to short-term gaps in product coverage where HECM has pulled back on lending limits where proprietary products have not yet been licensed/offered. That’s unfortunate for the potential borrowers affected but not an enormous effect from industry perspective.”

In his written testimony to the House submitted prior to his appearance at Wednesday’s hearing, National Reverse Mortgage Lenders Association (NRMLA) President and CEO Peter Bell expressed skepticism concerning advantages this idea would have for reverse mortgage borrowers, commenting specifically on the recommendation released by the White House earlier this month.

“Area-by-area loan limits penalize homeowners who have improved and maintained their homes over the years and have accumulated more equity as a result of higher home values,” Bell writes. “Applying the forward mortgage concept of ‘area limits’ to a financial resource (HECMs) created for a completely different population at a completely different time of their life would be ill-advised. This discussion took place in the Committee when the single national limit was enacted in 2007-2008 and that provision should remain in place.”

The “Preventing Foreclosures on Seniors Act of 2019”

The second piece of legislation authored in its current form by Washington Rep. Denny Heck is based on a previously-introduced 2017 bill introduced by Financial Services Committee Chairwoman Maxine Waters (D-Calif.), which failed to progress to the House floor while the body was under the control of Republicans.

The draft bill, titled “Preventing Foreclosures on Seniors Act of 2019,” is designed to reform HUD’s HECM program in ways that would help borrowers and non-borrowing spouses (NBS) of reverse mortgage borrowers avoid losing their homes.

The key provisions in the draft are designed to accomplish its goals by requiring mortgagees to notify eligible non-borrowing spouses (NBS) of opportunities that will allow them to remain in the home; providing eligible NBS “with a deferral of the due and payable status due to the death or cessation of residence of the borrowing spouse, as applicable, as long as the eligible non-borrowing spouse qualifies;” and the requirement that lenders “take appropriate loss mitigation actions” by offering payment plans for delinquent property charges and connecting borrowers at risk of default with HUD-approved counselors. 

The current draft of the bill also prevent foreclosures on non-borrowing spouses once the loan is assigned to HUD, unless they fail to meet certain basic requirements.

As noted in a memorandum released prior to the start of Wednesday’s hearing, the draft of Heck’s proposed legislation “closely mirrors” similar legislation introduced by Waters in 2017, and during the hearing itself Rep. Heck promised to make additional changes based on a report on the HECM program released by the Government Accountability Office (GAO).

“I hope you’ll be pleased to know that virtually every one of the recommendations in the GAO report I will incorporate into the next draft,” Rep. Heck told Alicia Puente Cackley, director of financial markets and community investment at GAO during the hearing. “And, we are in the process of that as we sit.”

While not specifically mentioning the full implications of the draft as written, Bell’s testimony included some support for the proposal in terms of publicly disclosing HUD data related to loan terminations.

“There are a lot of misconceptions about what HUD has and has not done, and what it could and should do with the HECM program,” Bell writes in his submitted testimony. “There is a dearth of publicly available information on loan terminations, an item called for in the Waters-Heck legislation under development, and a step forward NRMLA supports.”

Read the draft bills submitted by Rep. Heck and by Rep. Clay at the House Financial Services Committee.

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  • The article states: “The key provisions in the draft are designed to accomplish its goals by requiring mortgagors to notify eligible non-borrowing spouses (NBS) of opportunities that will allow them to remain in the home…”

    But the proposed Bill states: “The mortgagee shall notify the eligible non- 7 borrowing spouse in writing— 8 ‘‘(I) of the opportunity, pursuant 9 to subparagraph (B), for the eligible 10 non-borrowing spouse to remain in the 11 property that is subject to the mort-12 gage; and…”

    The word “mortgagee” is used sixteen times in the proposed Bill but the word “mortgagor” is not used once. The definition of the word “mortgagor” as kkssd 24 CFR 206.3 states the following: “Mortgagor means each original mortgagor under a HECM mortgage and his heirs, executors, administrators, and assigns.”

    I could not understand why the law would require the deceased borrowing spouse to inform the non-borrowing spouse of anything. After reading the proposed legislation it was clear that the mortgagee (i.e., the lender) was to do that. This is the difficulty of writing and reading summaries of proposed law. If the writer is not familiar with the subject matter, it confuses not just the author but the reader as well. This is why it is so important to learn the language of the law and the regulators when it comes to HECMs.

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