Since the reverse mortgage business is primarily defined by the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program, it is reliant on the functioning of FHA and the U.S. Department of Housing and Urban Development (HUD) for the majority of its business. If the federal government is shut down, it would disrupt the reverse mortgage industry’s ability to keep loans moving through the pipelines of lenders and brokers.
Everyone from political observers, analysts, reporters, lawmakers and the president indicate they are increasingly convinced of the likelihood of a government shutdown, so RMD is taking a closer look at what could happen to the reverse mortgage business if one comes to pass.
Why could there be a government shutdown?
As the U.S. House of Representatives and the U.S. Senate get closer to deadlines related to the federal budget without a spending agreement in place, the likelihood of a government shutdown increases. When existing appropriations lapse, there is no additional money remaining to keep government services functioning, impacting everything from federal agency activity to the availability of federal public services such as national parks. This has happened many times before, but the political climate today has made the current situation more pronounced.
Margins between the political parties in both legislative bodies are razor-thin. The U.S. Senate currently holds a Democratic majority of 51 seats to the 49 seats held by Republicans, while in the House, Republicans hold 222 out of 435 seats to Democrats’ 212, with one vacancy scheduled to be resolved in a November special election. The White House is also currently occupied by a Democratic president.
Things are further complicated in the House, however, by a series of rules adopted by House Speaker Kevin McCarthy that empowers the Republican caucus to more easily remove him from his leadership position when compared with previous speakers, a concession he made to secure the speaker’s gavel when Republicans took control of the chamber early this year.
The House and Senate have demonstrated that they remain far apart on spending issues on a variety of topics, and the White House has become increasingly combative about the prospects of a budget showdown since it was announced this week that the House would launch an impeachment inquiry into President Biden and his son Hunter’s business dealings. It remains possible that Congress could pass one or more continuing resolutions (CRs) that could extend the deadline for an agreement to the end of the year, but one has yet to materialize.
What about the reverse mortgage industry?
The reverse mortgage business most recently had to deal with the longest partial federal government shutdown in U.S. history at the end of 2018 into 2019. Back then, the House was controlled by Democrats while the Senate and White House were controlled by Republicans, with an impasse stemming from disagreements over funding primarily related to border security.
Having failed to reach an accord, the federal government was partially shut down on December 22, 2018. The biggest and quickest impact on the reverse mortgage business was that HECM endorsements were immediately halted due to a lapse in appropriations for FHA according to an announcement the agency sent out the morning after the Christmas holiday.
“Until further notice, the FHA Office of Single Family Housing and its mortgage insurance program will be operating with limited services, the FHA stated,” as reported by Elizabeth Ecker on RMD at the time. “While HECM payments to borrowers will continue during the shutdown, insurance endorsements will not be made for HECM or Title I loans, FHA stated. Additionally, HECM Collateral Risk Assessment issue assistance will not be available during the shutdown.”
Performance metrics, industry anxiety
Limited customer service remained available from FHA, but annual lender recertifications, lender application approvals and quality assurance processes for single-family loans were also suspended for the duration of the shutdown.
While only five working days in December were impacted by the shutdown, John Lunde of Reverse Market Insight (RMI) at the time surmised that volume levels were at least partially impacted. Loan originators in conversation with RMD at the time were concerned that a prolonged funding battle in Washington would begin to affect the business more negatively.
On January 25, 2019, the shutdown finally came to an end with a new spending agreement reconciled between the House and Senate and signed into law by President Donald Trump. In terms of the activities of industry professionals, many said that the biggest impact they felt from the shutdown was anxiety, but that they were largely able to proceed with business as usual.
However, industry performance metrics were clouded for months following the end of the shutdown, and had only become fully resolved by mid-2019.
What could happen to the business this time?
HUD has posted an updated contingency plan for a potential lapse in appropriations dated August 30. As it pertains to HECM, the plan confirms that HECM loans will not be able to be endorsed should a new shutdown occur.
Payments to HECM borrowers will also continue at the Office of Single Family Housing, since such payments fall under the standard of “the minimum operations necessary to support FHA’s existing portfolio.”
However, “FHA does not have the authority to insure additional HECMs during this period due to the statutory cap limiting the number of HECMs under the HECM Program,” the contingency plan said.