After delivering a speech that reiterated the Federal Housing Administration‘s (FHA) commitment to the Home Equity Conversion Mortgage (HECM) program, FHA Commissioner Julia Gordon participated in a question-and-answer session. National Reverse Mortgage Lenders Association (NRMLA) CEO Peter Bell asked her about relevant HECM program issues.
Gordon spoke about issues including the impending release of the Mutual Mortgage Insurance (MMI) Fund actuarial report as part of FHA’s annual report to Congress, as well as the looming threat of a government shutdown in November which would halt HECM endorsements if it comes to pass.
MMI report on schedule for November
The FHA’s Annual Report to Congress is always of major interest to the reverse mortgage industry since the HECM book of business inside the MMI Fund is assessed as part of the fund’s actuarial report.
In the past couple of years, the HECM book of business inside the MMI Fund has remained in positive territory. When asked about the report, Gordon expressed confidence that this status would not change, expecting its release by mid-November.
“We are well at work [on the report] already,” Gordon said. “We have an excellent team that has a really tight work plan. The date on that would only slip in the event of some major unanticipated thing, because that date is before [the point] we would have a potential lapse [in appropriations]. So we should be good for getting that out.”
Gordon added that she does not believe there will be any content in the report that would be “enormously surprising to anybody on any front.”
The figure in the HECM book of business is highly dependent on home-price appreciation, which is likely to be weaker in 2023 when compared to last year, but that was also a change that was telegraphed in last year’s report.
Gordon added that while it’s good to keep track of the HECM capital reserve inside the MMI Fund, it’s not as indicative of program performance as some might think.
“I think everybody here knows that when it comes to the capital ratio for the reverse side of things, that number is really dependent in kind of an outsized way on home prices,” she said. “And so when that number fluctuates – which it always will – it honestly doesn’t tell you that much about the health of the program, per se.”
Gordon alluded to a period in the mid-to-late 2010s when the capital reserve went into the red, indicative of the previous climate in different ways. However, she encouraged event attendees to read the content of the report rather than going straight for the capital reserve figure.
Potential appropriations lapse
While a government shutdown was narrowly avoided with a 45-day continuing resolution (CR) passed by Congress, those 45 days are almost up. In late November, absent any other temporary or permanent funding measures, the threat of a shutdown looms in the minds of government agencies like FHA once more.
If the government does shut down and appropriations lapse, Gordon confirmed that HECM endorsements will cease during that time period.
“Now, some of you may say it doesn’t prevent you from endorsing forward mortgages, [so you may wonder] why HECM was singled out for that special treatment,” she said of a potential shutdown. “And there’s not a policy reason, it’s because in the legislation, there is a cap on HECMs that is waived every year through the appropriations process.”
That cap has to be waived for the FHA to continue endorsing new HECM loans. In the event of an appropriations lapse, the cap is not waived, Gordon explained.
“In the interest of thinking about things you can do when we’re not on the precipice of a potential shutdown, it’d be nice at some point to legislatively resolve that,” she said. “So at the very least when we come up to the potential for lapses like this, that would be one less thing to have to worry about.”