National Reverse Mortgage Lenders Association (NRMLA) President Peter Bell told members of a key Senate committee that proposed changes to the federal reverse mortgage program would increase protections for consumers and improve financial stability of the program. “The three primary changes that FHA would like to quickly implement on the program, (a.) financial assessment of borrowers; (b.) principal limit utilization restrictions; and (c.) tax and insurance set-asides, would not only protect the FHA insurance fund, but simultaneously provide yet another level of safeguards for consumers,” Bell said during his testimony to the U.S. Senate Banking, Housing and Urban Affairs Committee.
“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. However, these changes are intended to eliminate those prospective borrowers who are less likely to have a successful experience with their HECM loan,” Bell testified.
Bell’s testimony came during the committee’s hearing on the long-term sustainability of reverse mortgages and the HECM program’s impact on the Federal Housing Administration’s Mutual Mortgage Insurance Fund.
“Making the types of program changes outlined above, as well as continually updating and enhancing reverse mortgage counseling, should enable [HUD] to effectively manage the HECM program, enabling it to remain a useful tool for elderly home owners, while minimizing risks to the taxpayers,” Bell testified.
NRMLA’s position was supported at the hearing by testimony from the National Council on Aging.
“The changes proposed could have a stabilizing effect on the program, assuring its existence for years to come. NCOA’s primary concern is ensuring that vulnerable older adults have access to appropriate resources to help them age in place with dignity, coupled with strong protections against financial abuse and exploitation,” testified Ramsey Alwin, senior director of NCOA’s economic security program.
Legislation to authorize HUD to make the proposed changes to the HECM program has been introduced by Senate Subcommittee on Housing, Transportation and Community Development Chairman Robert Menendez, D-N.J. The U.S. House approved similar legislation last week.
Currently, the types of changes HUD hopes to make can only be enacted through the full regulatory development process, which typically takes a year and a half or more to complete.
“The most productive action Congress can take is to provide HUD with the administrative authority to make changes on a more expeditious basis, so that it has the ability to respond in ‘real time’ as it observes various trends in the economy and patterns of behavior among HECM borrowers and lenders,” Bell testified.
Others support the proposed changes, but would force HUD to use the much slower regulatory development process to implement them – meaning it would take at least 18 months before any of he proposed safeguards could take effect.
“I have worked with HUD on HECM program issues for nearly 15 years now and have always found the Department to be a responsible steward of the program. FHA has continually monitored performance, collected feedback both informally and through various studies, and consulted with many stakeholders before modifying any procedures. I have no reason to doubt that such responsible leadership would continue if HUD is given the authority to fine-tune the HECM program as economic conditions and program performance require it to do so,” Bell testified.
Home equity is an increasingly important component of retirement planning, adding to the urgency of stabilizing the HECM program as quickly as possible.
“Housing wealth, the equity accumulated in a home, represents the largest component of personal wealth for many American households,” Bell testified. “Only 42 percent of retirees have pensions. Sixty percent of US workers report that their total household savings and investments, excluding the value of their home and any defined benefit pension, is less than $25,000. Making those meager resources last over an unknown period of time is a primary stress factor for many older Americans. They are one mishap away from facing a personal financial disaster.
“A HECM loan is not a complete solution to filling this retirement financial gap, but it is a valuable tool that has been utilized by nearly 800,000 older Americans to provide a degree of financial stability that helps them maintain their homes and age in place.”