The reverse mortgage industry is going to be watching the Senate next week to see if it can pass a bill that will give FHA more flexibility to fix its troubled Home Equity Conversion Mortgage program.
If the Senate fails to act and leaves for its usual August recess on Aug. 5, HUD will be forced to eliminate its Standard variable rate HECM product. That would leave seniors with only two options—the HECM Saver fixed-rate and the HECM Saver variable-rate—which have lower payouts than the Standard HECM.
The House of Representatives has already passed a bill (H.R. 2167) that gives the Federal Housing Administration new powers to regulate its reverse mortgage program via mortgagee letters.
Department of Housing and Urban Development officials have been seeking this legislation so they can act quickly to address problems involving the FHA reverse mortgage program.
The House passed a HECM stabilization bill (H.R. 2167), sponsored by Rep. Denny Heck, D-Wash., by voice vote several weeks ago.
H.R. 2167 is currently pending in the Senate. Reverse mortgage industry officials are hoping the Senate will approve it by unanimous consent so the measure can be sent to the White House for the president’s signature by the end of next week.
HUD has endorsed the Heck bill, which explicitly grants FHA the authority to implement three reforms immediately.
The reforms would require lenders to conduct financial assessments to ensure a HECM loan is the right product for a senior. It allows FHA to set limits on a first draw on a new HECM loan and require escrow accounts for property taxes and homeowners insurance, if necessary.
“This measure is needed because FHA lacks broad powers to respond quickly to problems in the reverse mortgage program and stem losses,” Heck said.
Nearly 10% of FHA-insured reverse mortgages are in technical default because HECM borrowers are behind in their tax and insurance payments.
If the Senate fails to pass the bill, FHA is expected to wall off the HECM Standard product so seniors will only have access to the HECM Saver products.
National Reverse Mortgage Lenders Association president Peter Bell noted that H.R. 2167 would give FHA more flexibility in making the needed changes. “We would prefer to see the Senate act and pass H.R. 2167 so that HUD can make the more sensible changes, rather than just whacking off a component to the program that serves some seniors,” he said.