Should the FHA Separate Forward and Reverse Mortgages?

The Urban Institute’s Housing Finance Policy Center is proposing that the Federal Housing Administration (FHA) separate its reverse and forward mortgages in order the better mitigate risks to its programs.

 

In a blog posting, Housing Finance Policy Center co-director Laurie Goodman and non-resident fellow Ed Golding argued that the two programs are significantly different, and having them under the same umbrella creates problems within the FHA’s policy making decisions.

 

“The November 15 report to Congress on the MMI Fund provides a powerful case for removing reverse mortgages, or Home Equity Conversion Mortgages (HECMs), from the fund,” Goodman and Golding wrote. “Separating the forward and reverse mortgage businesses will better serve both programs, which (respectively) finance approximately half of all first-time home purchases and provide seniors the opportunity to tap into home equity and age in place. The programs have different risk characteristics and missions. Lumping them together distorts their financial performance, interfering with policymakers’ ability to make sound decisions.”

 

The authors called on Congress to remove the HECM portfolio from the MMI Fund, adding that the FHA needs to “make data on HECM performance more available, so techniques for modeling performance can be improved.”

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