National Reverse Mortgage Lenders Association (NRMLA) President Peter Bell recently told a U.S. Senate Committee that the Department of Housing and Urban Development needs the authority to act quickly, manage risk, and strengthen the federal reverse mortgage program. “FHA is fulfilling a mission that is necessary and useful in helping older Americans remain in and maintain their homes. Aging in place is the most cost effective alternative for many households. HECM is a critical resource for helping seniors do so,” Bell testified at a hearing before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
After Bell spoke, Sen. Robert Menendez, chairman of the subcommittee which oversees housing, announced that he has prepared legislation to allow HUD to make the suggested changes.
“With stronger performance in the housing markets and the improvements we are witnessing in home price appreciation, plus the vastly improved outlook for newer loans, we believe FHA has the opportunity to ‘earn’ its way out of the negative estimate of economic value for the 2009 HECM portfolio, particularly if given the tools necessary to properly manage its risks going forward,” Bell said during his testimony.
To further improve the HECM program, Bell called for Congress to grant authority to the U.S. Department of Housing and Urban Development to make needed changes, “so they could be implemented in a matter of months, not years.”
“One of the challenges HUD has faced in managing the HECM program has been its inability to move swiftly in making programmatic changes that could enhance the security and financial performance of the Mutual Mortgage Insurance Fund,” Bell said.
Changes that the FHA would like to implement include:
►Establishing a financial assessment process, essentially a new approach to underwriting, being developed specifically for HECM borrowers, that would require lenders to ascertain a prospective borrower’s likely ability to meet all of his or her obligations under the loan, including paying taxes and insurance;
►Requiring set-asides or escrows for taxes and insurance;
►Introducing restrictions on initial draws and/or utilization of funds.
Bell used one recent successful reform of the program to highlight the increased versatility of reverse mortgages as a financial planning tool.
“With the introduction of the HECM Saver, which provides lower risk to the FHA insurance fund and lower upfront costs to consumers, the program has drawn interest from financial planners working with older clients,” he explained. “Many retirees experience peaks and troughs in their cash needs over time. As a result, they are often forced to liquidate assets at inopportune times.
“Utilization of a HECM Saver can provide cash for immediate needs and then be repaid back into the HECM line of credit when investment values are higher or when CDs mature. The net result, according to models run by leading financial planners, is that the client will have a larger amount of money available to meet their needs through retirement and fund longevity.”
Bell thanked members of the Committee for their support of the FHA HECM program and emphasized the growing role home equity plays in financial security for American retirees.
“The equity [Americans] have built in their home is often their greatest asset, an important resource for funding their future,” Bell said. “The FHA Home Equity Conversion Program has been a useful tool, helping hundreds of thousands of seniors maintain their homes and lead more financially stable lives.
“The program has been administered thoughtfully, carefully, and responsibly by a partnership of stakeholders including HUD, the lending community, senior advocacy groups like AARP and National Council on Aging, and the housing counseling network.
“This has allowed the reverse mortgage concept to gain a foothold and prove the value of this important personal financial management tool as a component of retirement finance and funding longevity.”