Since last summer, the Federal Housing Administration has been urging Congress for additional authority to quickly stem the hemorrhaging of its reverse mortgage program. But the lawmakers have not lifted a finger to give FHA the authority to regulate its Home Equity Conversion Mortgage program via mortgagee letters, which can go into effect the day they are issued.
Without this legislation, FHA has to go through a rulemaking process that can take on average 18 months to complete.
Meanwhile, the HECM program has been plagued by technical defaults where seniors can’t afford to pay their homeowners insurance and property taxes. Nearly 10% of the FHA-insured reverse mortgages are in technical default and nearly two-thirds of those borrowers are in repayment plans.
FHA commissioner Carol Galante has recommended three changes that could prevent future defaults and it has the backing of reverse mortgage lenders.
“To make such changes in a timely fashion and preserve the program for seniors, FHA is seeking statutory authority to temporarily make changes to the HECM program via mortgagee letter while formal rule making is simultaneously in progress,” Galante told Congress last week.
But efforts are afoot to provide Galante with the authority she wants.
Industry groups are working on getting a HECM bill (H.R. 2167) on the House suspension calendar for a quick vote. Reps. Michael Fitzpatrick, R-Pa., and Denny Heck D-Wash., are the co-sponsors of the bill.
The Senate Banking Committee is expected to hold a hearing on reverse mortgages later this month. And
“I am hoping the House will pass the bill before the Senate hearing,” Bell said.
The latest FHA actuarial report shows the HECM program has a negative economic value of $5.25 billion and FHA may have to seek a $943 million draw from the U.S. Treasury in October to cover projected losses.
The fact that the HECM program is sick and the cure is relatively painless should lead to legislative action. But legislating in this Congress is rarely easy.
If the HECM bill is passed and signed into law, FHA would require lenders to conduct a financial assessment to ensure a HECM loan is the right product for seniors.
FHA would also limit the amount of the first draw on a new HECM loan and require borrowers to set up escrow accounts for taxes and insurance.
“These changes will enable FHA to ensure that new HECM originations meet the needs of the target population and reduce risks to the FHA Mutual Mortgage Insurance Fund,” Galante testified.
Without these structural changes, “FHA will have to take more drastic action to ensure that new HECM originations are actuarially sound,” the commissioner said.
