While FHA officials have indicated that further changes to the Home Equity Conversion Mortgage (HECM) program are still on the table in order to further stabilize the reverse mortgage book within the Mutual Mortgage Insurance Fund (MMIF), no substantive changes were instituted at the end of 2019.
The legislative and provisional proposals outlined in the Department of Housing and Urban Development (HUD)’s congressional justifications for the White House’s recently-submitted budget proposal specific to the FHA Fund may provide further insight into areas that the government may hope to affect for further change in the HECM program.
The recent federal budget proposal would once again aim to eliminate the cap on HECM loans that can be insured by the Federal Housing Administration (FHA), while also building in support for other legislative initiatives that would have an effect on the HECM program.
Legislative proposals, general provisions
There are several proposals relevant to the HECM program that HUD intends to seek through the authorization process rather than the appropriations process, including permanently removing the limitation placed on the number of HECM loans that can be insured by the FHA. The White House budget proposal continues the 2020 enacted provision suspending the HECM loan cap through 2021, which has appeared consistently since the beginning of the Trump Administration.
Another proposal endorsed by HUD is a waiver of the HECM counseling requirement, providing HUD with the authority to mandate counseling for all HECM transactions.
“Currently, housing counseling is required for all HECMs except that the National Housing Act provides that Housing Counseling can be waived in a refinance transaction if less than five years have passed since the closing date of the current HECM and the application date of the new refinanced HECM loan,” the document reads. “Counseling for HECMs provides seniors the tools to understand a complex financial transaction that affects them and their heirs.”
As HUD has and will continue to make programmatic changes to the HECM program, a new counseling mandate is both beneficial to the seniors who have the ability to avail themselves of a HECM while such a requirement could also be beneficial to reduce the amount of tax and insurance defaults for seniors who age in place, HUD says.
HUD also recommends, as it did last year, to update the actuarial analysis that FHA uses to determine the adequacy of its HECM insurance premiums. As that actuarial analysis was conducted in 2001, FHA does not believe that the study which led to the actuarial basis is “adequate.”
“In connection with changes in home prices and other market forces, HECM has increasingly become a challenge to maintaining a healthy Mutual Mortgage Insurance Fund (MMIF),” the provision reads. “Utilizing the most recent FHA Actuarial study, which provides in-depth modeling of the MMIF, provides the best benchmark to set premiums in order to manage the impact to that Fund.”
Also repeated is HUD’s endorsement of a proposal which would impose regional HECM lending limits, as opposed to a national limit which currently sits at $765,600.
Since the White House and Congress recently came to a funding agreement applicable to fiscal years 2020 and 2021, forward momentum on these proposals is unlikely to take place particularly because of tumult in Washington in an election year. However, these may remain possible targets for program change in the future, through legislative and administrative remedies.
Changes in proposed commitment authority
Once again, HUD is seeking $400 billion in new commitment authority through the end of September 2022, with projected loan volume sitting at $210.7 billion. $200 billion of that total is for traditional forward mortgages, while the remaining $10.7 billion is for HECM loans. This is reduced on both the forward and reverse sides compared with the projections from one year ago, in which traditional volume was listed at $205 billion while HECM volume was listed at $13.6 billion.
“The size of the request and two-year availability for this commitment authority reduces the likelihood of program disruption under a continuing resolution or greater than expected volume,” the document reads.
A $2.9 billion reduction in projected HECM loans is comparatively more significant than a $5 billion reduction in forward loans, however total HECM loan volume in fiscal year 2019 was lower compared with the record lows seen in 2018, based on annual HECM endorsement figures provided by HUD.
Trade association response
The National Reverse Mortgage Lenders Association (NRMLA) is actively reviewing the recently-released proposals, according to association President Steve Irwin.
“NRMLA is carefully reviewing all of the available FY 2021 budget materials with our Executive Committee and we will determine any responses after that team has had a chance to wade through those materials,” Irwin said in an email to RMD.
Previously, NRMLA CEO and former President Peter Bell related skepticism concerning the geographic loan limit proposal, highlighting that a rule designed for the traditional mortgage world may not be an adequate fit for the different borrower profile found in the reverse mortgage arena.
“Applying the forward mortgage concept of ‘area limits’ to a financial resource (HECMs) created for a completely different population at a completely different time of their life would be ill-advised,” Bell said in a statement submitted to the House of Representatives ahead of a HECM-focused hearing in September 2019. “This discussion took place in the [Financial Services] Committee when the single national limit was enacted in 2007-2008 and that provision should remain in place.”