Newly-minted Secretary of the U.S. Department of Housing and Urban Development (HUD) Marcia Fudge is assuming control of the nation’s federal housing authority at a critical moment, not just during a time when housing in America is at a crossroads due to multiple national crises, but also at an important time for reverse mortgages and housing issues facing seniors.
Fudge, an experienced lawmaker and a trailblazer in her own right serving as the first female African-American mayor of a city in her home state of Ohio, comes into office with perspectives shaped by her time in local and national politics at a time when housing instability has struck an entirely new wave of Americans because of the COVID-19 coronavirus pandemic.
She also ascends to HUD’s leadership in a moment where the Home Equity Conversion Mortgage (HECM) program is on the cusp of several important issues which could shape it for years to come.
Reverse mortgages, and the additional attention needed
Fudge comes to office at a time of change for reverse mortgages, and the past four years have been a major indication about how much change the industry has had to adapt to stemming from the policies and practices of Secretary Fudge’s full-time predecessor, Dr. Ben Carson. Carson’s HUD instituted a series of alterations to the HECM program that many in the reverse mortgage industry found hard to swallow at the time, but which Trump administration officials contend has been directionally positive for the HECM book of business inside the Mutual Mortgage Insurance (MMI) Fund.
In speaking about the shape of the HECM program as it was just prior to the presidential transition, former Deputy HUD Secretary Brian Montgomery recently told RMD that many of the changes instituted at HUD under the leadership of Carson – including a reduction in principal limit factors (PLFs) and the institution of the collateral risk assessment – have led to a more stable HECM book.
“Remember the reduction to the PLF. And then later, looking at collateral risk, the appraisal validation, making changes to that,” Montgomery told RMD in an exclusive interview last month. “And so, between that and the house price appreciation, to answer your question, just looking at it in hard numbers, the [HECM] portfolio is in far better shape now than it was four years ago. But, vigilance can’t be let down, [HUD under the Biden administration has] to continue to be focused on it.”
Unlike other housing issues that may be prone to purely political or ideological interpretations, officials in the Trump administration including Montgomery and former FHA Commissioner Dana Wade have expressed that issues related to shoring up the HECM program for future strength need not descend into the partisan bickering between Democrats and Republicans that has come to define modern affairs in Washington, D.C.
“In terms of Congress working on comprehensive [HECM] reform, I have hope,” Wade told RMD on a call with reporters about FHA’s Annual Report to Congress last November. “I know this is a discussion that has continued for a long time, I think too long. I think it is time for Congress to act. I think there were some great reforms that we’ve proposed as part of our housing finance reform report, including looking at a standalone HECM capital ratio, that really should be considered on a bipartisan basis. There’s nothing political or partisan about it. It’s really all about fiscal stewardship.”
Bipartisanship, remaining HECM issues
Still, it remains to be seen just how “bipartisan” Fudge and the Biden administration at-large will perceive their predecessors’ efforts in regards to the HECM program. At now-Secretary Fudge’s Senate confirmation hearing in January, no mention was made of the HECM program and only cursory attention was given to the housing issues affecting seniors, as Democrats appeared more interested in discussing how other vulnerable populations would be served by Fudge’s HUD while Republicans were more interested in past comments Fudge has made about their party in the context of racial equality.
When RMD sought additional perspective from HUD for another story, a spokesperson for the Department reacted to the exclusive interview we presented with Former Deputy Secretary Montgomery by saying that his comments were not necessarily indicative of stances that the Biden administration has about the HECM program.
“We are aware of our previous Deputy Secretary’s comments to RMD about the Home Equity Conversion Mortgage program,” a HUD spokesperson told RMD in an email last month. “Mr. Montgomery’s perspective on the program from his time at HUD certainly provides his opinion of the program, but are not what we would characterize as ‘ongoing dialogue’ about the HECM program under the Biden Administration.”
This could indicate a difference of opinion between current and former leadership on HECM issues that remain to be accomplished. Former Deputy Secretary Montgomery described what he believes some of those issues to be in RMD’s exclusive interview.
“Look at some of the things we’re still trying to get over the finish line related to non-borrowing spouses and other things, we weren’t quite able to get up over the finish line, just because they take so long,” Montgomery said. “But again, seniors are part of HUD’s mission in serving vulnerable populations. And obviously, HECMs go a long way toward serving that population. So, I can tell you it’s a responsibility that HUD takes very seriously.”
HUD in the age of COVID, reduced morale
Of course, HECM is only one small part of the housing landscape that is overseen by HUD and the Federal Housing Administration (FHA), and Fudge ascends to her leadership position in a time of great stress for the American housing system and the larger economy. The COVID-19 coronavirus pandemic has ravaged both in equal measure, and while more people are behind on mortgage and rent payments when compared with the beginning of 2020, Fudge also assumes control of a Department that some housing insiders say is in need of major attention.
“HUD’s ranks have been gutted, morale has never been lower, and the challenges to HUD’s constituents have never been higher,” said David Dworkin, National Housing Conference (NHC) president and CEO in a report from Politico this week.
The story also details other structural challenges that HUD is facing and that Fudge will have to contend with, including staff losses and the aging workforce embedded at the Department according to a December HUD Office of the Inspector General (OIG) report.
“HUD today is operating with less than half the staff it had 30 years ago,” the Politico story reads. “And while the decline isn’t all on Fudge’s predecessor — HUD lost 18.5% of its staff over the Obama years, even as the overall government workforce grew by 11% — [Former Secretary] Carson repeatedly pushed budget requests that would have slashed HUD funding by about 15%, although Congress routinely ignored those suggestions.”
HUD predicted that by 2022, 63% of its employees – including 50% of supervisors and managers – would be eligible for retirement. These potential staffing gaps could lead to “an inability to sustain positive changes,” according to a December 2020 report detailing management challenges at HUD and FHA, as cited by Politico.
In the end, HECM has many remaining issues that will need to be addressed in the coming months and years by the new leadership team of HUD and FHA, including the further improvement of the HECM portfolio in the MMI Fund and the selection of a new HECM servicing contractor. There are also the wider economic realities that the Department must aim to address in addition to internal structural issues at the Department itself that could lead HECM to take a “backseat” for some time to come.
All of these events and circumstances require the reverse mortgage industry to remain engaged in, and focused on serving senior clients as best as possible given the rocky roads ahead.