Podcast E644: HECM Program Improves Despite COVID

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HECM Program Improves Valuation in FY 2020

In the early spring, the American economy was nearly flattened by shut-downs and shelter in place orders across the nation as a result of the COVID-19 pandemic. Ironically- despite this massive market interruption, FHA’s most recent report to Congress on the financial status of FHA’s Mutual Mortgage Insurance Fund reveals significant improvement in its capital position. Is this surprising?

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The 2019 HECM FHA Report to Congress

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What you need to know about FHA’s Report to Congress on the Home Equity Conversion Mortgage

[Download transcript]
Each year reverse mortgage lenders, originators and other mortgage market participants eagerly await the release of the Federal Housing Administration’s report to Congress on the financial status of the Mutual Mortgage Insurance Fund.

The good news is that the valuation of the HECM portion of FHA’s portfolio improved by over 50% in a single fiscal year from a negative valuation of -$13.63 billion in 2018 to a negative $5.92 billion in 2019. Why are we seeing such a rapid and marked improvement?

The comments of FHA Commissioner Brian Montgomery during a press call last Thursday may shed some light. “The improvements we’ve begun to put in place in the last two years to stem the losses of the reverse mortgage portfolio, aided by favorable economic conditions, are contributing to some improvements in our reverse mortgage portfolio.”

Politics, Gridlock & CFPB Enforcement

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Political gridlock, proposed changes & CFPB finding on HECM APRs

We’re in the full swing of the political season as the 2020 presidential race is underway. In a recent LGBTQ Town Hall hosted by CNN on October 10th, former HUD Secretary Julian Castro called out the agency’s head Ben Carson for his remarks during an internal meeting while visiting HUD’s San Francisco office.

The Washington Post reported in September “Carson also lamented that society no longer seemed to know the difference between men and women, two of the agency staffers said”. During the LGBTQ Town Hall candidate, Castro said, “The comments that Secretary Carson, my successor, made a couple of weeks ago are shameful. When you’re housing secretary, you’re there to serve everybody. And his comments made clear that he’s not able to serve everybody”. A HUD spokesperson denied the use of any derogatory language. It’s reported that Carson plans to leave HUD after the 2020 presidential election to return to the private sector should Trump be reelected.

And in other news, distraction and gridlock in the nation’s capital may be a good thing- at least when it comes to proposed additional changes to the federally-insured reverse mortgage. Two changes that remain unsettled are the return to geographic or county lending limits instead of the current national lending limit, and the removal of the HECM from FHA’s Mutual Mortgage Insurance Fund. Both reforms were promoted in the Trump Administration’s Housing Finance Reform plan released earlier this year in March.

In his prepared written statement for last month’s hearing on the HECM NRMLA President & CEO Peter Bell wrote, “Area-by-area’ loan limits penalize homeowners who have improved and maintained their homes over the years and have accumulated more equity as a result of higher home values. 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”.


Despite Scrutiny Some Changes Could Boost HECM Credibility

Recently recommended servicing reforms may boost HECM image

It’s a fact every salesperson and reverse mortgage professional must embrace- the vast majority of consumers inherently distrust salespeople. Will recent HECM changes help bolster the product’s legitimacy in the public eye?

The irony is that every major purchase from buying a home, a car or investing in your retirement entails working with a sales professional. The same applies to reverse mortgage professionals who approach a distrustful public. Further compounding this general skepticism are products whose unique features are highly advantageous leading many to say ‘if it sounds too good to be true, it probably is’. The good news is that recent changes to the federally-insured reverse mortgage may have helped us close the credibility gap.

One problem that has garnered the most press and Congressional ire are HECM ‘foreclosures’. While the vast majority of HECM foreclosures are the result of the last borrower passing away thus terminating the loan, many could have been avoided with better communication and outreach. At least that’s the consensus among lawmakers- some who are pushing for increased scrutiny of the servicing process- more specifically how those who are overdue on their property taxes are managed.  Are they sent a reminder before their property taxes are due? Are HECM borrowers who are delinquent on their property tax installment notified of any available local and state tax-deferral programs? Lawmakers are pushing for reforms to help avoid the fiasco that we call a ‘technical default’.

For a summary of last week’s Congressional hearing click here.

For a full video of the HECM hearing click here.

HECM reforms the focus of Congressional hearing

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Recent improvements, racial targeting, and some surprising suggestions

Despite the impeachment drama in our nation’s capital, the House Financial Services Committee’s hearing on the HECM was held as scheduled. It shows that some Congress members view of the HECM has evolved and some interesting proposals were put forth from the expert witnesses…

Documents referenced:
“Preventing Foreclosures on Seniors Act of 2019” [DRAFT]
A bill to conform HECM lending limits with FHA area limits


The HECM CBO report, politics & Congress

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The political consideration of the CBO’s HECM report

The unexpected news of the Congressional Budget Office’s report on reforming the HECM program created quite a splash among industry watchers. As the initial shock of the government watchdog’s recommendations sinks in, some are reading between the lines. One of the subtexts I missed are the political origins of the CBO report itself…

BREAKING: 2018 FHA HECM MMI Fund Summary

FHA Annual Report MMI HECM

[Download full report] [View press release summary] [Full Actuarial Review

Modest improvements and continued economic losses to the HECM portion of FHA’s MMI Fund

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Are More HECM Reforms Needed?

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Are More Rule Changes Needed or Does Data Need to Be Reexamined?

The new year is upon us and we can leave 2016 in the rear view mirror, with the exception of HUD’s pending reverse mortgage rules. Are additional HECM reforms truly needed to strengthen the HECM program?

loading-iconIn the wake of the election and the new year, lingering HECM program changes can be easily forgotten. Last May FHA introduced a series of new rules to strengthen the Home Equity Conversion Mortgage program. The changes included required HECM counseling prior to signing s mortgage contract, disclosure of all HECM features and options, and most problematically, a 5% lifetime cap on the adjustable rate HECM with a 1% annual interest rate cap. Numerous industry participants and the National Reverse Mortgage Lenders Association submitted inputs to the agency in the Federal Register. Several months have passed and yet there is no word if these substantial product changes will be enacted. Presently the proposed rule changes are in the final rule stage prior to regulatory review.

Many industry participants have voiced their concern that these changes will negatively impact the HECM program. Perhaps a more relevant point is the question if such changes are even necessary. Is the HECM program’s economic outlook as bleak as HUD’s recent report to Congress suggests?

HUD’s most recent report to Congress shows the HECM portion of FHA’s portfolio is valued at a negative $7.7 billion dollars. That represents a $13 billion dollar swing to the negative dropping from the previous year’s valuation of a positive $6.8 billion. Much of the impact can be attributed to slowing home appreciation upon which much of the economic modeling depends upon.

However, what is somewhat problematic are reports that HUD’s internal assumption are based on 100% of the available principal limit is used at the beginning of the loan. This assumed front-loaded loan balance is then factored based on future interest rates and the borrower’s age. This mathematical approach drastically increase the negative amortization of the HECM loan and the assumed ending loan balance…

Download the video transcript here.