Understandably, much of the discussion surrounding the state of the reverse mortgage industry comes down to the current political climate in the federal government: the United States Senate, the U.S. House of Representatives, and the policy priorities of the U.S. President in the White House and the people appointed to lead issues related to housing at the federal level: the Secretary of the U.S. Department of Housing and Urban Development (HUD), and the appointed commissioner of the Federal Housing Administration (FHA).
Since the Home Equity Conversion Mortgage (HECM) program came into existence as a result of the Housing and Community Development Act of 1987 signed into law by President Ronald Reagan in early 1988, a lot of focus naturally falls on the federal side.
However, a great deal of movement that can affect the trajectory of the entire reverse mortgage industry happens at the state and local levels as well, a fact highlighted during a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Policy Conference in April.
Knowing the basics
Any conversation about legislation at any level requires some understanding of the way the legislative process works according to Scott Norman, VP of field retail and director of government relations at Finance of America Reverse (FAR), as well as co-chair of the NRMLA board of directors.
The basic progress in terms of the way legislation is made at the state or federal levels is not abundantly different from one another. A piece of legislation is typically introduced by a sitting member of a state’s House of Representatives or Senate. After the proposed bill is filed, it would go through a specific committee of its chamber.
“That’s a great opportunity for you to really be able to explain to not only the sponsor of the bill, but the various members of the committee, how this may work, how it could be amended, how it could be strengthened or maybe watered down a little bit,” Norman explained. “And should that piece of legislation get out of the committee, then it would go to [either the House or Senate] floor, and should it pass that chamber, it would start the process completely all over again.”
After passing one chamber, it then goes to the other chamber of the legislature, where it then goes to a commensurate committee and voting process. If the bill makes it through that similar process in the other chamber, it then moves to the desk of the state’s governor for a signature, which codifies the bill into law.
“So, in essence, you would say there are five steps, but those are really big five steps,” Norman explained. “That process can take as short a time as a few months, but in many cases it can take years to go through the full process. Clearly, it’s going to be different in different parts of the country [due to] different legislators, [and asking if] it is a constitutional amendment or a regular bill. So, there are a lot of different changes that can walk through that process which can make it extremely complicated.”
A complex process beneficial for people and reverse mortgages
There is also the matter of a competing entity or entities that may approve or disapprove of something that is trying to be accomplished, whether that is the passage or defeat of a particular piece of legislation. The length and complexity of the process may be frustrating for those unfamiliar with it, but Norman is adamant that the way the process is designed is generally beneficial for anyone who tries to have a say in the affairs of their society, to say nothing of the reverse mortgage business.
“The process is really democracy at its best,” Norman says. “And while it may be somewhat frustrating, the beauty of the legislative process is you have an opportunity to stand up, meet with your representatives, explain why this may be a very beneficial piece of legislation or something that we may want to tweak or change, and that’s exciting.”
In addition to the social benefits of the democratic process, it’s also beneficial for the reverse mortgage industry specifically because of the kinds of doors that are opened with audiences who may not have been receptive to hearing about the product category in the past, Norman explains.
“I think it gives us an opportunity to have a voice and to get in front of people that maybe we ordinarily wouldn’t have gotten in front of, to explain why reverse mortgages can really be beneficial,” Norman says. “Especially in light of an aging population that is going to need ways to age in place and utilize their own home equity. I love the entire process, because it’s extremely exciting, but it also can be cumbersome because you have a lot of people that really don’t know what a reverse mortgage is.”
This is why an engaged industry is so important, Norman says, since educating the public about the product category is important for both prospective borrowers as well as the lawmakers that can influence the scope and trajectory of the reverse mortgage program at federal, state and local levels.
“I think [there’s a lot of] importance in making sure we try to deputize everybody in the industry to have a basic working relationship with their [legislative] members,” Norman says.
Where state and federal law may conflict
One of the issues that can emerge when engaged in government relations or deliberations with legislators is the idea that proposed legislation will, in some way, have a provision that does not conform with pre-existing guidance that the reverse mortgage industry operates from at the federal level, Norman explains.
“While a lot of this legislation on the state side may be well-intentioned, a lot of times what we see is that it does conflict with the federal guidelines,” Norman says. “Sometimes there may be a little bit of an overlap, and it may not be that big of a deal that we can work on. But in many cases, it is pretty significant, and it’s probably a deal-breaker. That certainly doesn’t always work well with the legislature, because they really don’t want to be in a position where they’re getting cross-blocked, if you will, from the federal side, when they think that there’s something in their own state that they need to work on.”
This understandably complicates the process of debate, adding another potentially frustrating component to an already laborious process. Having an active lobbying team work on behalf of the trade association is helpful, as is outside counsel, but it also further emphasizes the potential benefit for reverse mortgage professionals to have some kind of working relationship with their representatives or senators, Norman says.
“I think that it’s important that when we do get into these changes between the state and the federal side, it’s a really good idea to have not only a working relationship with your member, but to have a working relationship with your state Mortgage Bankers Association, or your state Bankers Association,” he says. “They’re certainly going to be keen on what we’re trying to do, and we certainly don’t want people running off and doing their own thing. But as it gets really complicated, and you get into some really unique legal aspects of [the process], you really want to make sure somebody is paying attention to even the most minute detail.”