The Home Equity Conversion Mortgage (HECM) program remains a critical component of the stated housing mission of the Joe Biden administration, and is a tool that can assist the objectives of both U.S. Department of Housing and Urban Development (HUD) Secretary Marcia Fudge and President Biden in ensuring that seniors have the ability to age in place in their own homes.
This was the core idea expressed during a keynote address at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting on Tuesday by Lopa P. Kolluri, Principal Deputy Assistant Secretary (PDAS) for the Office of Housing and the Federal Housing Administration (FHA). Kolluri, who previously addressed the reverse mortgage industry trade association at a previous event earlier this year, describes momentum on the part of HECM program management and the commitment of the federal government to remain engaged with the industry and its stakeholders.
This is especially true after the creation of a consolidated HECM program section inside the Single Family Housing Handbook 4000.1, she said. Kolluri also gave an indication that the health of the HECM book of business inside the MMI Fund may have improved, though she declined to go into specifics since the FHA Annual Report to Congress is not yet final.
The administration’s reverse mortgage perspective
Very much echoing the sentiments of previous FHA officials who have addressed NRMLA in the past, Kolluri explained that the key concern for HUD and FHA in regards to the HECM program is ensuring it remains “viable” as a tool for seniors going forward. However, Kolluri also explained that some key initiatives spearheaded by the Biden-Harris HUD have allowed the HECM program to benefit, she explained.
“When I spoke with NRMLA in April, I mentioned that we shouldn’t wait for the future to be upon us before we act. Seven months later, I am proud to be addressing you as a member of the administration that has moved from words to actions in record speed,” Kolluri said. “And this includes our work with all of you on the [HECM] program.”
Kolluri also alluded to the role that the HECM program can play in terms of the larger housing goals of the White House, tying the core mission of the HECM program and the reverse mortgage industry to the stated policy priorities of President Biden and Secretary Fudge.
“Let me say straight away that the HECM program remains an important component of HUD’s solutions to further housing stability for seniors,” she said. “As President Biden and Secretary Fudge have made clear: making sure that seniors have access to safe and affordable homes in which they can age in place is a key priority for this administration.”
Kolluri praised the work of NRMLA and the industry in working with the Department to support the “hundreds of thousands of seniors” currently utilizing a HECM loan, but also indicated that the program must remain in a state of evolution in order to be continually available to seniors who may benefit from it.
“The HECM program must continue to evolve to keep it viable for everyone,” she said. “As we’ve seen in the past, changes like the addition of the collateral risk assessment and associated requirements for second appraisals to support collateral evaluations can make a measurable difference in the program’s financial performance. Stable financial performance of the HECM portfolio puts us in a position to take quicker actions on how we manage policy and operational components of this program.”
Handbook consolidation, proposed HECM changes and LIBOR transition
Highlighting this evolution, Kolluri cited the recent set of consolidated HECM program requirements which were posted to the HUD Single Family drafting table at the end of September, which also had its review period extended from mid-November to the end of December, 2021. While the majority of the section up for review currently is a consolidation of disparate guidance into one more easily accessible place, there are some HECM program changes introduced, Kolluri said.
“In the draft, we’ve proposed guidance on extended gaps in employment to provide lenders with the actions they should take for a borrower who returns to work after being retired for an extended length of time,” Kolluri explained. “We’re also proposing a policy that codifies our guidance for HECM borrowers in presidentially-declared major disaster areas so that we are clear that HECM borrowers are protected in a manner similar to those with FHA-insured forward mortgages. And there are others.”
Industry comment on the newly-proposed HECM section of the handbook will be critical to implement this guidance, and Kolluri expressed hope that as many industry participants as possible review the materials as posted. Kolluri also gave attention to the impending transition away from the London Interbank Offered Rate (LIBOR) index for HECM adjustable-rate mortgages (ARMs), describing an additional need for the industry to share comments on the Department’s proposals in that area, as well.
“We published an advanced notice of proposed rulemaking in the Federal Register on October 5, and public comments are due on December 6,” Kolluri says of the transition from LIBOR to the Secured Overnight Financing Rate (SOFR). “I cannot convey to you in strong enough terms how important it is that NRMLA members contribute their comments, and I know that you will. There will be a challenging transition for your existing HECM ARM servicing portfolios. As an industry, we’ve got to get this right, and we’re relying on you to help us navigate through the complexities and through the considerations.”
Technology updates, COVID-19 response
While recent work to bring HECM features to FHA’s Catalyst software platform have made for a consistent effort on the part of FHA and HUD to modernize some reverse mortgage processes, there is more to be done in terms of technological integration, Kolluri said.
“While far from a total solution, we have modified our new FHA Catalyst appraisal submission technology to accept HECM appraisals, with a full transition required by April 15, 2022,” she explained. “This is a small change admittedly, but it’s the first tangible HECM origination presence on the new platform, and it is an important first step.”
Kolluri also gave additional updates to FHA’s response to the ongoing COVID-19 pandemic, and how the agency’s actions interact with the HECM program and the industry which surrounds it, pointing out the waivers issued on September 2, which allow for the review of borrowers for subsequent repayment plans for unpaid property charges, regardless of the total outstanding money owed that has not yet been paid (arrearage). One also permits mortgagees to seek the assignment of a HECM loan to HUD immediately after using their own funds to pay unpaid property taxes and insurance on or after March 1, 2020.
Industry, MMI Fund health
While FHA is not yet ready to offer specific figures related to the health of the HECM book of business inside the Mutual Mortgage Insurance (MMI) Fund since the agency’s Annual Report to Congress is still being finalized, she did indicate that a “spring and summer of action” has led to totals which best fiscal year 2020, according to agency data.
“We’re focused now on finalizing our Annual Report to Congress on the MMI Fund which we hope to have out in a few weeks,” she said. ‘I can’t speak to specific results, because quite frankly we are still verifying the numbers. What I can say is that despite the constraints and the pandemic, the HECM program has served almost 45,000 seniors this past fiscal year through August, already surpassing the total endorsement volume in FY 2020.”
The year has had strong house price appreciation, a fact that “bodes well” for the HECM portfolio in the short term. That may not tell the complete story, however.
“As we all know, projections of the HECM portfolio’s financial performance is substantially more sensitive to changes in house price appreciation and interest rates,” she said. “I know that you are anxious to see the fiscal year and HECM portfolio results when they are published. We know that we have more challenges, but also more opportunities to work with you and with to address those challenges, but with your support and your willingness to work closer collectively with us, we can keep the momentum going.”