Reverse Mortgage Legislation Takes Back Seat to Washington Tumult

A series of proposed legislative and administrative changes to the Federal Housing Administration’s (FHA’s) Home Equity Conversion Mortgage (HECM) program have not moved forward in Washington, D.C., as politicians in the nation’s capital have focused on other, more tumultuous and immediate concerns.

In addition to a series of legislative and administrative proposals submitted by the U.S. Department of Housing and Urban Development (HUD) to the White House last year, additional legislative proposals from two Democratic members of the U.S. House of Representatives were also proposed in the fall as possible methods by which the HECM program could be further stabilized.

White House and HUD/FHA proposals

In September of 2019, the White House released a housing finance reform plan which contained specific proposals related to enhancing and stabilizing the HECM program from both legislative and administrative angles. Among the key HECM recommendations, the plan encourages three administrative proposals including the development of new HECM servicing standards and the elimination of HECM-to-HECM refinancing.

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Among the legislative proposals the plan makes, one is to revise the loan limit structure in the HECM program to reflect variation in local housing markets, as opposed to operating off of one national HECM lending limit, which currently sits at $765,600 as of January 1. Another is to separate the HECM book of business from the Mutual Mortgage Insurance Fund (MMIF). The legislative proposals would require action from members of Congress that as of now have not taken place.

Additional forward momentum on the proposals by HUD and the White House is currently unclear, though a HUD representative did indicate to RMD that the department is still continuing to work on ways that the various proposals might be implemented.

“We continue to actively work on the proposals contained in the Housing Finance Reform plan, but it would be premature to comment on any specific actions or outcomes,” a HUD spokesperson told RMD.

Response by the reverse mortgage industry to the proposals has been mixed. One reason for a tepid response could be that eliminating HECM-to-HECM refinances could reduce both refinance volume and general HECM volume according to Reverse Market Insight (RMI) President John Lunde, since it could inspire more cautious borrower activity, he says.

“[This proposal] could introduce a more cautious approach by borrowers if they can’t refinance if/when better rates/terms come along,” Lunde told RMD in an email shortly after the proposals were made public. “[That can happen] particularly if it was very strict in saying a borrower could only ever do one HECM on a specific property. It seems like a very strong reaction, and I’m curious what the motivating factor for it is.”

Proposed HECM program bills

Later in September, two Democratic members of the U.S. House of Representatives – Washington state’s Denny Heck and Missouri’s Lacy Clay, respectively – introduced their own legislative proposals with the intention to enhance the reverse mortgage program.

Rep. Clay’s proposal aims to codify the Trump Administration’s loan limit proposal, with the key provision of the draft bill reading 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.”

Rep. Heck’s 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, with key provisions being designed to accomplish its goals by requiring mortgagees to notify eligible NBS of opportunities that will allow them to remain in the home.

It would also mandate that lenders provide 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. It would also prevent foreclosures on NBS once the loan is assigned to HUD, unless they fail to meet certain basic requirements.

Rep. Heck also indicated in a September House Financial Services Subcommittee hearing that recommendations made by the Government Accountability Office (GAO) in their recent reverse mortgage report would also be making their way into his draft bill in a future revision.

The offices of Representatives Clay and Heck did not return requests for comment on the progression of their respective sponsored pieces of legislation in time for publication. While the impeachment trial of the president has reached its conclusion, the general tumult that is present in the nation’s capital in an election year will likely make additional change to the HECM program unlikely at the legislative level.

This was observed by Jim Milano, partner at law firm Weiner Brodsky Kider from Washington, D.C. in a presentation made at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville late last year.

“I’m making a prediction here that GSE reform, and things with our industry won’t settle until the end of the 2020 presidential election,” he said. “What happens after that heavily depends on the outcome of that election. There’s a lot of effort going into [impeachment proceedings] in Washington right now that’s sucking up a lot of time and bandwidth.”

New White House budget proposal

Despite the fact that the HECM program featured prominently in last year’s housing finance plan spearheaded by the White House, the president’s budget proposal for fiscal year 2021 released on Monday features limited language on an initiative that could have an impact on the federal reverse mortgage program.

Specifically, based on the aforementioned Housing Finance Reform Plan, the budget plan makes reference to modernizing technology at FHA along with reinforcing a commitment to reverse mortgage administrative and legislative proposals.

“Consistent with HUD’s Housing Finance Reform Plan, the Budget requests $20 million to continue modernizing FHA’s outdated single-family information technology systems and includes legislative proposals that would strengthen the viability of reverse mortgages, improve FHA’s lender enforcement program, and protect taxpayers,” the document says.

The only new information as it pertains to activities from HUD is in relation to the Community Development Block Grant and HOME Investment Partnership, identifying these programs as candidates for excision from the budget due to similar initiatives present in the private sector and in local governments.

“The Budget eliminates wasteful programs that have failed to demonstrate effectiveness, such as the Community Development Block Grant (CDBG) and HOME Investment Partnerships Programs (HOME), recognizing that State and local governments are better equipped to respond to local conditions,” the White House proposal reads. “These eliminations would save taxpayers $4.8 billion in 2021.”

Other agencies receiving proposed cuts in the proposal include the Environmental Protection Agency (EPA) budget by 26.5% over the next 12 months, along with the budget of the Health and Human Services department by 9% in the same period of time. The Department of Education would be cut by just under 8%, the Interior Department by 13.4%, and the State Department by 22%.

However, since the White House and Congress recently came to a funding agreement applicable to fiscal years 2020 and 2021, forward momentum on these proposals is unlikely to take place particularly because of the aforementioned tumult in Washington in an election year.

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  • All these proposals can be talked about until the Sun goes down, but it still boils down to what Jim Milano said:

    “The outcome within our industry won’t be settle until the end of the 2020 presidential election!” What happens after that heavily depends on the outcome of that election”

    Lets face it, nothing is getting done on the hose level or in congress as a whole like it should be, we need to get beyond all this foolishness and waste of tax payer money. Then, just then, something productive can be done, I hope!

    John A. Smaldone
    http://www.hanover-financial.com

  • “It would also mandate that lenders provide 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;’” This is an obvious move to end the Mortgagee’s right to foreclose as reflected in Mortgagee Letter 2015-15.

    “…the budget plan makes reference to modernizing technology at FHA….” For years we have seen Administrations and Congresses acknowledge the fact that modernization of the technology is inadequate but $20 million might take care of the need “to catch up” but what is needed is a long-term sinking fund set up so that FHA has the funds it needs to update and maintain hardware as well as apps and other forms of software as it is needed and when it is needed rather than deferring such activities until funded years later. Further such delays mean that FHA and HUD cannot properly acquire technology in an orderly fashion resulting in excessive costs and periods of time suffer from inadequate data gathering when compared to other insurers.

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