FHA Commissioner: HECM Program Improving, Still Needs ‘Structural’ Change

The Federal Housing Administration (FHA) is encouraged by the increasing health of the Home Equity Conversion Mortgage (HECM) program inside the Mutual Mortgage Insurance Fund (MMIF) as revealed by the department’s annual report to Congress last week, but must continue to address remaining deficiencies in it after a series of major changes in 2017 and 2018. Among the issues remaining to be addressed are the volatility and long-term strength and viability of the program in the future.

This is according to remarks made by FHA Commissioner and Acting Deputy Secretary of the Department of Housing and Urban Development (HUD) Brian D. Montgomery in a keynote speech at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville on Monday.

“We’ve seen the improvements [in the HECM program] over the past year, and we know that it is not enough,” Montgomery said. “It is not self-sustaining, and while the state of the economy is important to the improvement, the time to fix the roof is when the sun is shining.”


Stabilizing the program for the long-term will mean putting the HECM program into a position where it does not rely on a subsidy from the forward mortgage book of business within the Mutual Mortgage Insurance Fund (MMIF), and while proprietary product innovations are welcome, FHA must ensure that the HECM market is not overwhelmingly shouldered by the federal government, he said.

Brian D. Montgomery

FHA will continue to seek input from the reverse mortgage industry, which will better allow those within the government to understand the intricacies and potential impacts of any proposed HECM program policy changes, Montgomery said. Part of this is rooted in the impacts that were observed by the major program changes in 2017 and 2018.

“While PLF changes in 2017 and appraisal bias mitigation policies instituted in 2018 are important, they are not long-term solutions,” Montgomery said. “We need to discuss structural issues.”

While addressing that the HECM program has remaining structural issues, the improvement of the program within the MMIF should not be understated, Montgomery said. Specifically citing the more than 50% improvement in the HECM program’s capital ratio compared with its standing one year ago, part of the improvement in the overall health of the program can be attributed to program changes like PLF cuts and the added possibility of a second appraisal having their “intended effects,” Montgomery said.

The addition of the collateral risk assessment alone, according to Montgomery, helped to add $250 million to the HECM program within the MMIF.

“This is a marked improvement, but of course still negative,” he said. “The HECM portfolio shows dramatic improvement due to program changes, along with the health of the economy and housing market.”

Another positive sign for the industry, Montgomery said, is the influx of private reverse mortgage products in answer to a question posed by NRMLA CEO Peter Bell. FHA’s perspective concerning the increasing proliferation of proprietary reverse mortgages is that the agency finds it very encouraging, Montgomery said.

“I feel like the CEO of a $1.4 trillion corporation that doesn’t have to make a profit,” Montgomery said to laughter. “We don’t view our success in terms of market share. We want the private sector to come up with proprietary products.”

Montgomery previously alluded to the possibility of additional HECM program changes in a call with reporters shortly after the release of HUD’s annual report to Congress. After recently being nominated to serve in a full-time capacity as Deputy HUD Secretary, Montgomery is scheduled to appear at a Senate confirmation hearing on Wednesday morning.

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  • I really hope the “structural changes” are focused on what HUD is doing with the servicing and disposition of properties upon termination of the HECM. It’s time to make major changes to that side of the business (leave the servicing with the lender) before touching the origination side. I pray that is being strongly emphasized by those that have HUD’s ear.

    That being said, it feels like HUD is trying to wind down their involvement in reverse mortgages, and re-instituting MSA limits will do just that. I just don’t know what their target is, because the 10/2/17 changes took a huge bite. Having a HECM product that can only serve a small segment of the population is concerning because we saw what happens to proprietary products when the housing market is declining nationwide.

    • Agree. I come across properties being serviced by Novad that have been in occupancy or tax default for years after the borrowers left or died without any action being taken. Meanwhile the costs accrue the property becomes more rundown.

      Several years ago lenders used to run a social security death index search. I recall heirs getting a call within days of a borrower’s passing. I believe this was only a pilot program that was not renewed.

      Regardless, the lenders still know the birthdates and should take a close look at any borrowers over 100. Probably should require a notarized occupancy cert after the age of 88 and every two years thereafter. Even if HUD paid for the notary it would be cheaper then the losses from occupancy fraud or neglect.

  • Just as housing and economic conditions can improve, they can also deteriorate.

    HUD reported the economic net worth of HECMs in the MMIF as of September 30, 2018 as a negative $13.634 billion and then as of September 30, 2019 as a negative $5.918 billion for a change of a positive $7.716 billion.

    The independent actuarial firm, Pinnacle, reported the economic net worth of HECMs in the MMIF as of September 30, 2018 as a negative $12.104 billion and as of September 30, 2019 as a negative $9.534 for a positive change of just $2.570 billion.

    So why is there a $5.146 billion difference between the change reported by HUD and its actuaries? In fact the positive change reported by HUD was three times the size of the positive change that the actuaries reported. While the actuaries reported a smaller negative amount for the economic net worth of the HECMs in the MMIF as of 9/30/2018, HUD reported a smaller negative net worth for the HECMs in the MMIF as of September 30, 2019 than the actuaries.

    What is even more interesting is neither HUD nor its actuaries explained why the difference between the changes in each of their computations in the economic net worth for fiscal year 2019 from fiscal year 2018 was as large as it was. HUD has told us vaguely referred to home appreciation and lower interest rates.

    The actuaries indicated three sources for the changes: 1). assumptions, 2). the model, and 3). book. The actuaries never bothered to define the three categories nor attempt to describe them. Book changes could refer to any number of different causes. So are the categories intentionally vague? Hard to say. Or even worse, could the book change be some kind of shorthand for accounting adjustments. It is odd that neither party explained their changes, especially HUD. Not addressing the changes with anything more than HUD did, opens HUD to more criticism about the quality of their accounting and actuarial reporting. For the first, I found myself doubting the reasonableness of the numbers I was reading.

    Both HUD and the actuaries need to provide much more information about their changes but this is particularly true of HUD if for nothing more than the size of its total adjustments.

    The largest stakeholders should demand more disclosure and better breakdowns of any changes that are reported in the economic net worth of HECMs in the MMIF. This is particularly true of Congress.

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