The U.S. Department of Housing and Urban Development (HUD) has a series of legislative priorities in 2022, and one of them appears to be substantive reform to the way that the Home Equity Conversion Mortgage (HECM) program operates. This is according to a public notice posted to the website for the Office of Information and Regulatory Affairs (OIRA), a division of the White House Office of Management and Budget (OMB). The notice was first spotted by RMD sister publication HousingWire.
Reverse mortgage program reform has long been a reality of operating in the space, stemming from legitimately-discovered deficiencies in the way the product serves its borrowers down through persistent reputational issues that have pushed regulators to more closely monitor the reverse mortgage industry and the companies that operate within it.
When reached for comment about the OIRA entry and any priorities that HUD maintains for reverse mortgage program reform, a representative with HUD told RMD that the Department had nothing additional to the public posting to offer.
The published proposed rule for reverse mortgages
While the OIRA entry does not detail any specific program reforms or priorities maintained by HUD for 2022, it does call attention to some of the fiscal instability that the HECM portion of the Mutual Mortgage Insurance (MMI) Fund has endured in recent years as a corroboration of the need for program reform.
“This proposed rule would revise HUD policy concerning the Home Equity Conversion Mortgage Program (HECM),” the entry begins. “HECM was designed to provide senior citizens a mechanism to utilize the equity in their homes. This program has been costly to the Federal Housing Administration (FHA) as claims on the HECM program have cost the Mutual Mortgage Insurance Fund billions of dollars in recent years, but has also created operational burdens and complexity in programmatic requirements that have limited the accessibility to the program for the population it was meant to serve.”
While specificity in the OIRA entry is generally limited, an inkling of information related to the issues that HUD is focused on for the HECM program revolves around the concepts of expanded borrower protections and HECM servicing, both of which being longtime sources of debate within the circle of the reverse mortgage industry and its direct stakeholders.
“FHA must develop changes that ensure the program is fiscally sustainable, while still serving the needs of seniors,” the entry reads. “To address these concerns, HUD proposes to establish certain changes to the HECM program, including providing additional Borrower protections consistent with the goals of the Program, ensuring uniformity in servicing requirements across the portfolio, providing that mortgagees will retain the servicing of the HECM rather than assigning it to HUD, and codifying other provisions issued previously under the Reverse Mortgage Stabilization Act.”
Fiscal sustainability, recent prior reform efforts
Last month, FHA issued its Annual Report to Congress which detailed that the reverse mortgage program inside the MMI Fund had reached positive territory for the first time since 2015. However, the proposed rule published on the OIRA website does not make mention of the recent change in the status of the HECM program inside the Fund, instead focusing on the fiscal years in which HECM operated in negative territory between 2016 and 2020.
In the last few years, efforts to reform the reverse mortgage program have taken place among both Democratic and Republican politicians. In late 2019, the Donald Trump administration included a series of potential HECM program reforms in a housing finance reform plan submitted by the U.S. Department of the Treasury. That plan encouraged three administrative proposals including the development of new HECM servicing standards and the elimination of HECM-to-HECM refinancing. A legislative proposal the plan made was to revise the loan limit structure in the HECM program to reflect variation in local housing markets, as opposed to operating off of one national HECM lending limit.
Also in 2019, two Democratic members of the U.S. House of Representatives who sat on the House Financial Services Committee each proposed different pieces of legislation aimed at reforming the HECM program. One bill, authored by then-Rep. Lacy Clay (Mo.), intended to “conform the maximum loan limit for reverse mortgages insured by the FHA to be consistent with the area maximum loan limits for FHA-insured mortgages, and for other purposes,” the draft reads, following the recommendation in the Treasury proposal.
The second bill, authored by then-Rep. Denny Heck (Wash.), would’ve required mortgagees to notify eligible non-borrowing spouses (NBS) of opportunities that would allow them to remain in the home; providing eligible NBS “with a deferral of the due and payable status due to the death or cessation of residence of the borrowing spouse, as applicable, as long as the eligible non-borrowing spouse qualifies;” and the requirement that lenders “take appropriate loss mitigation actions” by offering payment plans for delinquent property charges and connecting borrowers at risk of default with HUD-approved counselors.
Any programmatic or legislative attention that was given to the reverse mortgage program in 2019 was effectively wiped out by the COVID-19 coronavirus pandemic. Both Reps. Clay and Heck no longer serve in the House due to Clay losing his seat to a primary challenger, and Heck’s decision to run for and eventually win the seat of Lt. Governor in Washington State.
Representatives with HUD indicated to RMD shortly after the inauguration of President Joe Biden that the reverse mortgage priorities of the Trump administration were not necessarily the same as those of the Biden administration.
Read the entry at OIRA.