U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson says that improving the financial viability of the Home Equity Conversion Mortgage (HECM) program will be an important part of protecting American taxpayers.
The Secretary reiterated Trump Administration proposals made earlier this year, while also later telling a reporter that corrective changes to the HECM program appear to be working ahead of the release of an actuarial report expected later this month.
In a speech at the Mortgage Bankers Association (MBA) Annual Convention and Expo this week, Carson told attendees that enhancing the financial viability of the HECM program falls within HUD’s larger goal of “protect[ing] taxpayers by strengthening FHA’s risk management systems.”
“The HECM program, which has supported millions of American seniors who choose to ‘age in place,’ has suffered significant financial distress in recent years,” Carson said in his prepared remarks. “At the end of fiscal year 2018, FHA’s HECM portfolio had an economic net worth of roughly negative $14 billion dollars and a standalone capital ratio of nearly negative 19 percent. We are actively working to improve this, and early indications are the improvements put into place in the HECM program over the last two years, putting the program on a better trajectory.”
Many of Carson’s remarks related to the HECM program echo similar statements he gave earlier this month to the House Financial Services Committee, and in September in front of the Senate Banking Committee. Carson also used his time in front of MBA attendees to reiterate HECM program proposals introduced earlier this year by Trump Administration officials, designed to strengthen the program further.
“First, we recommend Congress reform HECM’s loan limit structure to reflect variation in local housing markets and regional economies across the country,” Carson began. “Second, HUD asked Congress to establish a separate HECM capital reserve ratio and remove HECMs as obligations to the Mutual Mortgage Insurance Fund, which would provide a more transparent accounting of program costs, and; Third, HUD proposes FHA eliminate HECM-to-HECM refinances, as these loan transactions result in greater appraisal inflation, increasing program costs and causing quick ‘churn’ in pool participations.”
Carson also spoke to HousingWire while in attendance at the event, relating his belief that the HECM program is showing further signs of stability in the wake of changes handed down by the Federal Housing Administration (FHA) in 2017 and 2018, but that the department continues to monitor the program’s financial situation.
“The hemorrhaging [in the HECM portfolio] appears to have stopped,” Carson told HousingWire. “But we’re still keeping a close eye on it.”
Carson also said that HUD is actively seeking to remove the HECM program from the MMIF due to the fundamental differences between the forward and reverse mortgage programs at FHA, in concert with the Administration’s proposals.
“We would like HECM to have its own capital reserve. But, Congress will have to do that,” Carson explained.