The National Reverse Mortgage Lenders Association (NRMLA) is throwing its weight behind a bill introduced in the U.S. Senate that would help the Federal Housing Authority (FHA) stem the losses on its reverse mortgage program.
The HECM Stabilization Act of 2013, introduced by Sen. Robert Menendez, D-N.J., would require a more thorough financial assessment of borrowers, restrict the utilization of principle, and increase tax and insurance fees on the loans in order to protect the FHA from further losses that will ultimately be borne by taxpayers.
"These additional provisions might preclude some needy borrowers from obtaining [Home Equity Conversion Mortgages], thus forcing them to make the difficult decision to move out of their homes,’ Peter Bell, chairman of the NRMLA, told members of the U.S. Senate Banking, Housing and Urban Affairs Committee, according to a Bloomberg News report. ‘However, these changes are intended to eliminate those prospective borrowers who are less likely to have a successful experience with their HECM loan.’
The bill is similar to one passed in the House last week that proposes basically the same measures to keep the FHA from going further into the red. The Reverse Mortgage Stabilization Act of 2013, the first bill introduced by rookie Congressman Denny Heck, D-Wash., would help the FHA protect itself from even greater reverse mortgage losses by allowing it to sidestep the normal rulemaking process that can stretch out for months or even years.
Like the Senate bill, the House bill would limit the size of initial lump sum payments that lenders offer reverse mortgage borrowers and require escrow accounts to cover taxes and insurance. Both bills would also give the FHA 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.
"Making the types of program changes outlined above, as well as continually updating and enhancing reverse mortgage counseling, should enable [the Department of Housing and Urban Development] to effectively manage the HECM program, enabling it to remain a useful tool for elderly homeowners, while minimizing risks to the taxpayers," Bell said, according to the Bloomberg News report.
The proposed Senate bill also has support from the National Council on Aging (NCOA). Ramsey Alwin, senior director of the NCOA's economic security program, reportedly told the committee that it would ‘have a stabilizing effect on the [HECM] program, assuring its existence for years to come.’