Former Deputy Secretary of the U.S. Department of Housing and Urban Development (HUD) Brian D. Montgomery had at least one conversation specifically about the Home Equity Conversion Mortgage (HECM) program with President Donald Trump, and faced unprecedented difficulty when attempting to help craft the Department’s response to the COVID-19 pandemic for HECM and the multitude of other HUD programs in order to continue achieving its mission in helping vulnerable populations.
This is according to the second part of RMD’s exclusive interview with Former Deputy Secretary Montgomery, who also shared thoughts on the performance of the HECM book of business in the Mutual Mortgage Insurance Fund (MMIF) at the time he left office, what he hopes that the Biden administration keeps in mind about decisions made at HUD and the Federal Housing Administration (FHA) during the Trump years, and what he may do next in the realm of housing after taking some time off.
This second part of RMD’s exclusive interview has been lightly edited only for concision and readability.
Reverse Mortgage Daily: Did you ever have a chance to discuss — even offhandedly — the HECM program with the president? I’m curious if he ever expressed any thoughts whatsoever about HECM, or if he just delegated that entirely to you and to Secretary Carson.
Brian Montgomery: I will answer your question [by saying] that yes, we did have a discussion about the topic, but it was when we were presenting the housing finance reform plan, ironically, to the president. It was [HUD] Secretary [Ben] Carson, [Treasury] Secretary [Steven] Mnuchin, [National Economic Council Director] Larry Kudlow, me and others.
I won’t attribute anything to any one specific person, I’ll just say that we had a 10-15 minutes-long and very robust discussion about the importance of the HECM program, with Secretary Carson and I vigorously sharing our perspective on its many virtues, which I think was a good thing. I was really — I don’t want to say surprised — but the president certainly was aware of the program. He was aware of the product, so it was an interesting discussion. I’ll leave it at that.
I think our audience will be interested to know that the topic was even broached at all and got directly to the president’s ear.
I won’t go into any specifics on it, other than it was a robust discussion.
I’d like to shift topics now to COVID-19. What was the process like for crafting HUD’s pandemic response, particularly in the relief measures that would apply to HECM and its borrowers? And, how does HUD go about forming a response considering all of the housing needs that have been created by COVID-19? I imagine that the “cruise ship” you referred to must have gotten even more unwieldy with a crisis like that.
It did. Everybody had to, literally overnight, convert to remote, virtual work. I, like a lot of folks, were pleasantly surprised how that came about, and how successful it was. We do all these drills and per day, they’ll tell you, “take your laptop home and everybody log on.” You might yawn [at the idea of having to] do another one of these tests. And sure enough, we literally saw it in reality.
I really need to commend, obviously, the single family office. Joe Gormley deserves recognition for his effort and later, Dana Wade for her leadership, and the career staff. I can just tell you, they put in many, many long hours dealing with FHA and the rest of HUD, as well. We had a lot of priorities, whether it was the group that FHA serves, forward or reverse mortgages, or folks living in public housing. We provide grants to cities for homelessness, for dealing with medical issues. Again, we’ve got a lot of residents in public housing and our health care program.
So, it’s a lot of populations that we serve, but they’re all vulnerable populations. And certainly the senior citizens, we learned, were at a heightened danger of getting seriously ill with COVID-19. And so, in an effort to keep them home and to keep them safe, a lot of seniors want to age in place, as we know. But it also shut a lot of them off from their support networks, from their family and from their friends, just because of social distancing. And then, we had to deal with just the reality of social distancing. That meant that we had to take other measures including extending flexibilities to HECM borrowers. We aimed to take just about every step possible to protect the borrowers, and then certainly to avoid worsening the public health situation.
So whether it was forward or reverse, we took a lot of steps: foreclosure and eviction moratoriums, and we extended timelines for assignments. We provided flexibilities on repayment plans and certifying occupancy, and everything designed to protect HECM borrowers we had to do in a different way. So, it was a pretty intense time.
FHA handed down the ability to do exterior-only and desktop-only appraisals pretty quickly. But, near the end of the term, FHA allowed the desktop-only option to expire, because it wasn’t quite being used as much as the exterior-only. How quickly did something like appraisals enter the equation when it came to determining a pandemic response?
They very quickly [entered our minds], for the obvious reason, that people didn’t want to let strangers into their houses. That, and even re-verification of employment. With everybody working from home, it got harder even just to find someone. But appraisals were certainly near the top of the list for a lot of reasons.
Many of the relief measures that were handed down had to be re-extended several times. What goes into deciding on a timeline for certain relief measures? Is there a budgetary impact to having a relief measure last too long that dictates implementing them in smaller steps? What goes into that kind of a decision?
It certainly can have a budget impact, but again, this was so new for us. Not just for our country, but for the entire world. We had to ask ourselves, how deep is this pademic going to be? How long is it going to last? We all wanted to be optimistic that we would get over it, or there’d be a vaccine. And everybody in their own mind [may have thought] we’d be over this in a year. Well, that didn’t happen. We made a lot of progress, in that we’ve now deployed a vaccine.
You try to [respond] in ways where you can. It’s easier to do it in tranches and extend it than it is to do it, hypothetically, for six months, 12 months, or 18 months and then trying to dial it back. [In terms of] selling something to the public or looking at the optics of it, it’s easier to do it in tranches. So, that’s what we tried to do.
In your recent piece at Government Executive, you expressed the idea that you hope your successors would take time to understand the decisions that you and your team had to make during a largely unprecedented crisis. What were you referring to? Does that apply to relief HUD tried to aim at seniors? Or was that more of a holistic perspective?
Maybe a little of both, and I’ll leave it to your readers to decide to what degree. There’s this knee-jerk reaction — and I’ve seen it. I’ve worked for four presidents, including six months in the Obama administration. I’ve worked in incoming and outgoing administrations. So, I’ve seen just about everything. This is the point I was trying to get across: I just want people to avoid the knee-jerk reaction that comes with [the idea that] “if the other team did it, it must be bad.” And again, both parties have been guilty of that.
The other one is, it’s easy when you’re on the outside to criticize and say, “why did you do X when you should’ve done Y?” People can do that — again, I’m not pointing fingers at one particular party here — because they weren’t there working 12, 14 or 16-hour days working with advocates, working with folks from the industry, working with government agencies and the states, trying to figure out how we’re going to do “X, Y and Z.” These decisions were a series, a process of [saying] “we got to point A. Do we get to point B, or do we try and jump to point F?” Again, it’s easy to pontificate on the outside.
So, I was just trying to make the point that you need to get in there, roll your sleeves up, talk with the career staff and fully understand the depth of the problem and why we did what we did, and why we did it for the period of time [we were in control]. And there’s folks on the outside fanning the flames: think tanks and other groups who have their opinions. And trust me, we’re not talking shrinking violets here.
So here you are, offering what you think is a good policy idea. But then someone says, “somebody did that in a previous administration.” And you respond, “okay, did it work?” This knee-jerk reaction that “if someone from the other party tried it, it must be bad,” I just want people to avoid that temptation. And it’s a hard temptation to avoid, oh, boy. Trust me. The new administration has been there just a few weeks. So hopefully, when they start getting their team in place, they’ll get a little more perspective. But then again, they’re running the executive branch now. So that’s the point I made in my article.
It’s their decision now, but I hope they understand why we came to whatever decision it was, and the process behind it.
And I would assume that now that there is a new set of decision-makers involved, that they would have to go a little bit deeper in determining why a specific choice was made, and will judge it on its own merits.
Commissioner Wade was a bit critical to the HECM book of business when the department’s Annual Report to Congress was published in November. But, I’m curious about your perspective on the performance of the HECM book in 2020. Based on its trajectory at the time you left office, do you think it’s on track to move into positive territory this year barring, of course, changes that are out of your control now?
To get Dana’s opinions, you can certainly call her, but I can just offer my perspective. As I’ve mentioned before, over the last three-to-four years, the product’s definitely been on a much better trajectory. You can see it in the numbers, I think your readers are familiar with those, and particularly the economic value has been growing. But, it was in such a deep hole that even with the improvement, it’s still negative. Albeit it’s barely negative, which is a huge improvement to be clear.
But also, again, it touches on HUD’s mission. Seniors are a vulnerable population, and so we do get premium income back, obviously, from endorsing HECMs. Meanwhile, we’re obviously moving out billions of dollars in public housing, again, as part of our mission. But certainly in this case, at least there’s some return on what we’re doing. That’s not why we do it, but it’s nice to have some premium income. So I would just say, HECMs are the law of the land, as is the governance of the Mutual Mortgage Insurance Fund. The two are not mutually exclusive, quite the opposite.
So, it’s just very important to find that balance between protecting the Fund, but more importantly serving the vulnerable population that HUD, legislatively, isrequired to serve, obviously including seniors.
How do you feel about the future of HECM? Would you say that you’re optimistic about it, or does it require more serious effort to reinforce its fundamentals by future decision-makers? If you had to boil it down, what would you say your one hope is for HECM?
Again, I think it speaks so much to HUD’s mission. I’ll remain very optimistic about the future of the program for a lot of reasons. Like everyone, I hope its economic situation and status continues to improve. But, there are some other things that are left to be done. Obviously, the LIBOR transition and as I mentioned, before the revision to the non-borrowing spouse provision are things that we were close to the finish line on. I would say that both of those should still be on OMB’s website and OIRA, showing that they are over there and undergoing official review.
The transition away from LIBOR is something that we had to do, and we fully understand that it’s immensely important for the stability for the market, and for everybody who’s in the business of making HECM loans. Equally as important as the non-borrowing spouse [issue], the revisions we were making of that policy, and consumer protections, of course, being another thing HUD cares deeply about. The other thing that we’d hoped to get across the finish line, obviously, included making updates in the revisions to the HECM section of the Single Family Handbook, and the digital controls we put into place around the HECM appraisals.
The one other area was possibly looking at expanding the life expectancy set aside, since our data shows that loans that have the life expectancy set aside in place do perform better than those that don’t. So, again, I’m optimistic, though there is still some work to be done.
Is there anything that I haven’t asked you about that you think the reverse mortgage industry should know about your time at HUD, or your overall perspectives on the program? What should they keep in mind as they continue in this business?
I would just say to them that they should continue to do the great work that they do. Obviously, the counseling is a requirement, but having sat in on some of the counseling sessions, I just never cease to be amazed about the quality of the counseling that seniors get, albeit remotely now. And having gone to many conventions, I can see that the folks involved with the industry have a different perspective than folks on the forward side.
I’m not saying one’s better than the other, it just seems to be that on the reverse side of it, folks are very emotionally invested into the topic. That’s because they have this deep feeling of helping seniors as a vulnerable population. And so, I would just say advocate for them to continue to do that great work, and the government will continue to do what they need to do. And in so doing, realize we’re helping millions of people do what they want to do and age in place, and hopefully improve their economic situation.
The last question I really have for you, sir, is what’s next for you? Do you plan to remain involved in housing in the private sector? Or do you have other plans for the future? Is there anything you can share with us?
Well, certainly I do want to take a little time off. I would say I have no intention of retiring anytime soon. So, I’m going to keep working. We’re going to probably stand up a consulting firm with some of my former colleagues at HUD and at FHA. And if we do that, I would definitely say our reverse mortgage expertise will be a part of the offering of the new firm. Not just advice around single family, but also multifamily, healthcare and even disaster recovery, I oversaw the $55 billion in disaster recovery funds that HUD deployed across the various states and other jurisdictions.
So, that’s an expertise, I think, that we would certainly offer. And I intend to join a few boards, something that I was doing before I resigned to go back into the government. I’m looking forward to doing in-person conferences again as a speaker, and certainly did a lot of them virtually. And, I hope to finish one of the many books that I’ve never had time to finish. (laughs)
But, I will continue to be a voice on all things related to FHA and HUD, and I look forward to seeing some of our colleagues and folks in the industry, hopefully soon at a conference, so I’ll definitely get to stay busy.
Read part one of our exclusive interview with Former Deputy HUD Secretary Montgomery.