The National Reverse Mortgage Lenders Association (NRMLA) is supporting pending legislation in the House and Senate that would grant the Department of Housing and Urban Development (HUD) the authority to make changes to the Home Equity Conversion Mortgage (HECM) program in order to stem losses.
In a statement, the organization said it was encouraged by three proposals that have been introduced so far this year, including the HECM Stabilization Act of 2013, introduced in the Senate in March, the Reverse Mortgage Stabilization Act, introduced in the House in June, and the Federal Housing Administration Solvency Act of 2013, introduced in the Senate in July. All three proposals aim to give HUD greater rulemaking power so that it can implement measures to stem losses in its reverse mortgage program.
"The HUD proposal is a model for responsive and responsible governing," said Peter Bell, president and CEO of NRMLA. "No government program works perfectly from the outset. HUD has carefully observed the results of the 780,000 HECM loans thus far and suggested creative improvements based on the actual experiences of borrowers."
Changes to the program that are supported by HUD include a financial assessment of reverse mortgage borrowers; mandatory set-aside of funds for tax and insurance payments; restrictions on the amount of proceeds that can be drawn initially; and including all borrower spouses on loans, to eliminate risk faced by non-borrowing spouses.
"All of these changes consider both the best interests of borrowers and the ongoing health of the government insurance fund," Bell said. "Historically, HUD has made smart changes to improve the HECM program, strengthen the insurance fund, and fulfill its mission of helping aging Americans maintain and remain in their homes. Aging in place is a cost effective choice for many households. HECM is a critical source for helping them do so."
All three proposals would limit the size of initial lump sum payments that lenders offer reverse mortgage borrowers and require escrow accounts to cover taxes and insurance. The bills would also give the Federal Housing Administration greater latitude to change its policies without having to get congressional approval.
The FHA is facing up to $5 billion in reverse mortgage losses this year and may need a bailout totaling up to $1 billion in order to shore up its reserves. Most of the losses were incurred when millions of homeowners took out reverse mortgages, opted to take lump sum payments and then ran into financial problems. The agency, which is required by law to maintain reserves equal to 2% of its portfolio, currently has about $32 billion in reserves.
The HECM Stabilization Act of 2013, introduced by Senators Robert Menendez, D-N.J., and Kirsten Gillibrand, D-N.Y., has not yet been brought to a vote.
The Federal Housing Administration Solvency Act of 2013, introduced Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, also has not yet been brought to a vote.
The Reverse Mortgage Stabilization Act, sponsored by Reps. Denny Heck, D-Wash. and Michael Fitzpatrick, R-Pa., was approved in the House on June 12.