The U.S. Department of Housing and Urban Development (HUD) continues to support the Home Equity Conversion Mortgage (HECM) program as an option that can benefit certain seniors seeking to age in place, though certain questions about HECM program policies from the Department remain ambiguous or unanswered. This is according to a statement provided by the Department to RMD after specific outreach about the reverse mortgage program.
In general, the HUD statement provides an overarching policy perspective on the general stance that HUD under the administration of President Joe Biden has for reverse mortgages broadly and the HECM program specifically, however direct questions about HUD’s current and future plans for HECM policy remain unanswered based on RMD’s correspondence with a HUD spokesperson.
General HECM perspective from HUD
Since the HECM program is not often a repeated topic of conversation from HUD when the Department or its Secretary makes housing policy-oriented public statements, any time that the HECM program is directly addressed by officials in the federal government at HUD always makes for a noteworthy occurrence.
However, the HECM program taking a proverbial “back seat” in terms of overall policy statements and public discussions is understandable considering the other housing policy priorities shared with the public by both the president and HUD Secretary Fudge, which has made direct information from the Department outside of notices like Mortgagee Letters few and far between.
When reaching HUD for perspective on the HECM program in this time of recovery for the United States in the wake of the COVID-19 coronavirus pandemic, the Department makes clear that HECM has a place for those members of the senior demographic who are seeking options to remain in their own homes without the need to sell the property.
“The Home Equity Conversion Mortgages (HECM) program fills a unique role in the national mortgage market and offers critical opportunities for the nation’s seniors to utilize their own assets and resources to preserve their quality of life by aging in place,” a HUD spokesperson told RMD.
Additionally, HUD also referenced the recently-released White House budget proposal, a document which asks Congress for a level of funding that the Department believes is necessary to support HECM and other mortgage programs adequately into the foreseeable future, the statement said.
“The President’s FY 2022 budget includes FHA commitment authority for both FHA-insured Single Family forward and Home Equity Conversion Mortgages at a level that is appropriate to maintain the programs for the nation’s homebuyers, including seniors who will be seeking a Home Equity Conversion Mortgage,” the statement said.
Finally, the Department makes a brief mention of the cost of HECM servicing with relation to the funding request for the Mutual Mortgage Insurance (MMI) Fund.
“As in past years, the budget proposal includes Administrative Contract Expenses required for the operations of the programs, including servicing of HECM mortgages held in the Secretary’s portfolio,” the statement explained.
While any clarity about HUD’s perspective on the HECM program is welcome, several questions asked by RMD about the program and issues adjacent to it remain unanswered by the relatively brief statement from HUD. For instance, RMD asked specifically about why the Department did not feel the need to make any legislative or administrative requests or recommendations pertaining to the HECM program in its budget request, a notable departure from several HECM recommendations made by the Department under the previous administration.
The Department also declined to address questions related to the possible selection of a new HECM servicing contractor, a selection which was an apparent priority of prior HUD leadership but which was not fulfilled before the inauguration of President Biden and the introduction of a new team at the Department. RMD also sought additional clarification about the void in Department leadership, with positions like Federal Housing Administration (FHA) commissioner and deputy HUD secretary remaining unfulfilled, with no public indication of potential nominees for the commissioner and other positions.
In the past, Secretary Fudge has addressed staff shortages at the Department – most particularly in a press briefing she participated in earlier this year at the White House – but specific positions were not addressed, nor was a timeline concerning when vacant positions might be filled. As of right now, the senior-most official with FHA is Principal Deputy Assistant Secretary for the Office of Housing and FHA Lopa P. Kolluri, who herself addressed the reverse mortgage industry in April at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Policy Conference.
The budget request
The recent federal budget proposal and an accompanying congressional justifications document about HUD-specific elements crucially indicates that a request of $180 million for the MMI Fund is for FHA administrative contract expenses; an expansion of the Good Neighbor Next Door (GNND) Program; and a new Home Equity Accelerator Loan (HEAL) pilot. This accounts for an additional $50 million over the enacted levels seen the prior year, which FHA attributes first to increased costs for FHA mortgage servicing, largely singling out HECM servicing.
“The primary cause of the increase is the growing expense of servicing the Secretary-held HECM portfolio,” the document reads. “In addition, due in part to the increased volume of partial claims in response to COVID-19 and disasters, the Secretary-held mortgage servicing portfolio continues to grow. FHA anticipates expending significantly more resources to service these mortgages and to dispose of the properties once they become vacant.”
Additionally, a section devoted to HUD in the full budget document reveals that FHA’s HECM program is projected to operate at a credit subsidy level equal to -2.54% in fiscal year (FY) 2022. This means that HECM is projected to generate more receipts for the federal government than it will pay out in claims for the year’s HECM book of business, marking for a substantive improvement in the overall position of the HECM portfolio and confidence in its solvency from HUD and the White House.
The estimated credit subsidy level of the HECM program for the remainder of FY 2021 is estimated to be equal to -2.39%, which is equal to the estimate last made in the Q1 FHA MMI Fund Programs report to Congress released in March. That report detailed that the HECM program was exhibiting a trend of overall budget positivity even as raw volume had fallen relative to Q4 2020.