The budget proposal recently submitted to Congress by the administration of President Joe Biden is headlined by a sweeping price tag of $6 trillion, dedicated to either expanding or establishing an abundance of spending programs aimed at hastening the economic recovery of the United States after the COVID-19 coronavirus pandemic.
However, documents released alongside the main budget proposal from the White House by the U.S. Department of Housing and Urban Development (HUD) give the first substantive indication of the Biden administration’s perspectives on the Home Equity Conversion Mortgage (HECM) program, including about the performance of the Mutual Mortgage Insurance (MMI) Fund, and the ability for HECM to generate economic receipts for the federal government.
For additional thoughts on the current state of the reverse mortgage program, RMD turned to Former Deputy HUD Secretary and Founding Partner of Washington, D.C.-based housing consultancy firm Gate House Strategies, Brian Montgomery, for thoughts on how the reverse mortgage program appears to be performing under the new administration, and why the government is requesting an additional budget contribution to the MMI Fund.
The size of the Secretary-held portfolio
The former deputy secretary is quick to identify what he believes is the primary cause for the request of additional funds, which is an especially salient point considering what the economic fallout from the pandemic has looked like thus far.
“The growth in the Secretary-held portfolio is more than likely the reason for the $50 million budget request,” Montgomery tells RMD. “This process requires a highly competent Servicer to handle a highly complex product for one of HUD’s key constituents — seniors.”
As has been the case for a long time, servicing continues to be a sticking point for both industry observers and its actual participants, as it continues to affect the trajectory of the HECM program in the eyes of the federal government and lawmakers charged with overseeing federal expenditures. One such sticking point is the 98% threshold a loan is required to reach before it can be assigned to HUD.
“The current program requires the servicing of loans to move from the existing Servicer to the Secretary-held loan servicer when the loan balance hits a certain threshold,” Montgomery says. “Due to the structure of the program, the Secretary-held portfolio has grown significantly in the last 5 years (approximately 150,000 loans), and it keeps growing.”
Growing size translates to growing cost
The idea that the portfolio is continuing to grow in size and commensurate cost has contributed to calls from both industry observers and participants concerning the need for HUD to designate a new HECM servicing contractor. The need certainly exists for a competent servicer to be able to address the growing costs associated with servicing the portfolio, but another cost-savings measure could be maintaining the current servicer, Montgomery explains.
Novad Management Consulting has been FHA’s reverse mortgage servicing contractor since 2014. Maintaining the existing structure in terms of HECM portfolio servicing could be an important step to rein in the costs associated with servicing the HECM portfolio, Montgomery says.
“Given the increase in portfolio size, the cost of Servicing the portfolio has grown significantly as well, and the need to have a competent Servicer to handle the size and scale is also very important,” Montgomery tells RMD. “One possible solution for the increase in costs of HECM servicing is to keep the Servicing with the existing Servicer. It reduces the unnecessary friction for borrowers of having to deal with a new servicer, creates consistency in the program, and I believe, will ultimately reduce overall costs for the HECM program.”
2020 comments from FHA
Recent indications are that the agency is aiming to find a new servicing contractor to help fix remaining back-end loan issues, according to recent comments from U.S. Department of Housing and Urban Development (HUD) and FHA personnel.
Prior to the inauguration of President Biden and the installation of the new administration, an FHA official stated that it the agency is continuing to seek a new servicing contract for HECMs sponsored by the federal government, but the agency remains dedicated to providing as much additional relief as possible to reverse mortgage borrowers that have been impacted by the COVID-19 coronavirus pandemic.
“For us directly in the national servicing center, one of our biggest priorities for the upcoming year, and one that’s in-progress right now [is] procuring a secretary-held HECM servicing contractor,” said Kasey Watson, program director of HECM servicing at HUD’s National Servicing Center late last year at a reverse mortgage industry conference. “This is a little bit different than what we have done in the past. In the past, we have had a single secretary-held servicing contractor for all of the single family FHA-held or secretary-held mortgages that included some forward mortgages.”
In terms of actions that FHA can take to further stabilize the HECM program, new procurement will be HECM-specific, Watson said at the time.
“The current procurement that is out and [which] we are currently working through will only involve servicing of HECM mortgages,” Watson said. “So, we’re excited for that change, and excited that that procurement is in-process. Of course, as that works through this entire process, I can’t give you any kind of update as far as when we think that will be completed. But it is in-progress, and we’re excited to be moving forward down this new path.”
Prior to the change of administrations, RMD attempted to ask then-FHA Commissioner Dana Wade about the progress in securing a new HECM servicing contractor, but she declined to offer any additional details when discussing the results of FHA’s Annual Report to Congress.
“I cannot comment on contracting or procurement, I want to make sure that I am adhering to the federal laws and regulations in this area,” Wade said.