In part 1 of an RMD Q&A with the former president of the Government National Mortgage Association (GNMA, or “Ginnie Mae”) Ted Tozer, he discussed the posture of the Home Equity Conversion Mortgage (HECM) program and its servicing challenges. In this second part, Tozer offers up more thoughts relating to the administration of the HECM program by the Federal Housing Administration (FHA), some of the challenges he faced during his time with the Obama administration, and even some of the interest in reverse mortgages he observed from other nations.
The retirement crisis is not an isolated American problem. Representatives of other nations in the West, particularly throughout the European Union as well as in Australia and New Zealand, have developed their respective reverse mortgage industries in order to find another potentially viable solution for creating liquidity among older segments of the population. Tozer describes how he saw this firsthand during his leadership at Ginnie Mae and beyond.
RMD: The prior administration had made some recommendations to reform the HECM program that were both legislative and administrative. From your perspective, do you think there are actionable steps on the administrative side that FHA or the reverse mortgage industry itself can take to improve its position, or does there really need to be legislative intervention?
Ted Tozer: I think a lot of work can be done administratively, especially from FHA in general. The private sector can help too, but I think FHA is at a point where what bothers me is that FHA is all about the process, not about the outcome. [If a borrower has] a document they can’t find from 10 years ago, but the loan is [otherwise] fine, then if it really doesn’t affect the ability for you to enforce the mortgage and move forward, don’t get hung up on it because it doesn’t fit your process.
It should all be outcome-based. And I think that’s what I’d like to see from FHA, both the forward and reverse sides. I’d like to see them become more about how this affects the borrower, the property and so forth, versus actually saying, ‘under our guidelines, you have to do these three steps. You missed stuff.’ But if it didn’t change the outcome, why do you care?
RMD: Ginnie Mae was without a full-time, permanent president between your resignation and the confirmation of the incumbent, Alanna McCargo. Do you think that negatively impacted the stability of the reverse mortgage business on the securitization side?
TT: The career staff at Ginnie Mae are as good as any you’re ever going to find, whether at Fannie, Freddie or wherever. That career staff [is focused on] moving forward. The career staff we have, I think, is really unique at Ginnie Mae. That’s because of the fact that the senior management at Ginnie Mae, essentially, all the ones in really technical areas all came from the private sector. They’re not [longtime] government employees.
The person who runs the Capital Markets Group that deals with all the REMIC activity where most of these HECMs end up and that develops markets for the HMBS, came from Wall Street. He didn’t work for the government until he came to work for Ginnie Mae.
The person who’s responsible for the issuer management, she’d come from Freddie Mac and Fannie Mae. So, the people there know what they’re doing. They’re very competent from a technical perspective, and I think they did a great job during the last administration. They have become really respected to the point where even though they were career, [political] people respected them to set policy.
RMD: Is there a disconnect between those two sets of people, typically?
TT: Just from my experience in the government, it used to be fact that at most organizations, the career people were seen to be there to execute policy [that was] developed by the political [appointees]. Well, without a confirmed president, they were able to move forward. […] Since they came from the private sector, they’re all about getting the job done. So, they stepped forward to set the policy to do what needed to be done, even without the cover of a political [appointee].
Whereas in other parts of the government, the career people are really concerned about exerting policy-type decisions, whereas the Ginnie Mae staff again, both because they’re so technically competent, plus the fact that they came from the private sector, I think they really weren’t intimidated to actually make some policy decisions on their own. So, I don’t think it really hurt that bad. The only thing that would’ve possibly hurt was the concept of interdepartmental discussions.
RMD: Do you think that people within the government should be talking more about the reverse mortgage program than they did during your time at Ginnie Mae, or more than they are now based on what you’ve heard?
TT: It wasn’t very widely talked about during the Obama administration just because we had the larger housing crisis to worry about. And even today, I never heard the Trump administration talking about reverse mortgages much either, just because it’s such a small piece of the housing puzzle. We’re talking 30-50,000 units, that’s nothing when you compare it to what’s going through the forward mortgage market.
That’s a problem, it’s so small people forget about it, even though personally, getting back to your point about the demographics having essentially taken off: I agree. To put it in perspective, what’s interesting to me, when I used to travel the world and went to countries like Russia, mainland China, Hong Kong, Japan, South Korea to talk about the Ginnie program, we were talking about the regular MBS, but it almost always came back around to reverse mortgages.
RMD: That’s really interesting, why is that?
TT: Because this is a challenge around the world. The aging population is cash-poor. So whether it was in Hong Kong, Beijing, Moscow, they all wanted to know how the HECM program was working, and how the HMBS program was working, because they had to find a way to have their seniors tap into their home equity.
That’s because pensions weren’t keeping up with the cost of living, and they had many of the same challenges. So that’s the reason I agree. This is something we have to figure out, and the whole world’s working on ways to try to figure it out because they also have the same challenges. Seniors are cash-poor.