MBA Proposes Changes To Stabilize The Reverse Mortgage Market

The Mortgage Bankers Association (MBA) has sent a letter to the FHA/Ginnie Mae in response to a Request for Input (RFI) seeking comments on how to modernize and strengthen the Home Equity Conversion Mortgage (HECM) and HECM Mortgage-Backed Securities (HMBS) programs to better serve senior homeowners and support market liquidity. 

The letter — written to Frank Cassidy, Principal Deputy Assistant Secretary for Housing for the Federal Housing Administration (FHA), and Joseph Gormley, EVP and COO of Ginnie Mae — addresses undue lender burdens and program features that present obstacles to borrower access, with the goal of reinvigorating the HECM and HMBS programs.

The MBA argues that HECM remains “a secure and sustainable product” that has enabled more than 1.3 million older Americans to tap into their home equity to fund retirement needs — without monthly mortgage payments — thereby promoting financial independence for seniors and reducing reliance on public assistance. The letter also details how HECM laid the groundwork for proprietary reverse mortgage products, which model themselves after HECM standards to maintain transparency, regulatory compliance, and consumer confidence.

Market Conditions: Demand And Obstacles

According to MBA members, demand among seniors for HECM remains strong, but actual HECM origination volumes have been depressed. The letter attributes this to burdensome loan processes and high upfront costs, which deter many, even if they may benefit from a HECM. Proprietary reverse mortgage products have grown, offering alternatives that sometimes accept higher loan limits or properties not eligible under FHA rules. Nonetheless, the MBA argues that HECM continues to play a crucial role, especially for lower- to middle-income retirees, and through an improvement in its structure, access across more demographic groups would be expanded.

Liquidity And Structural Challenges

A major concern highlighted by the MBA in their letter is the liquidity shortfall in the HMBS market. The RFI itself noted a sharp decline in HECM activity, including a roughly 59% drop in endors­ed HECMs since 2022, and only about $6.3 billion in unpaid principal balance securitized in 2024, roughly equal to levels a decade ago. 

In response, MBA urges the adoption of a new HMBS security that would allow HECMs at 98% of their Maximum Claim Amount (MCA) to be re-securitized. 

Additionally, MBA recommends a streamlined servicing regime where, under their proposal, private servicers — rather than the FHA — would continue servicing HECM loans even after the loans are assigned to FHA post-buyout. This shift would relieve FHA of servicing burdens and related losses, while enabling private servicers to retain servicing-fee revenue and potentially pass savings to borrowers via better loan pricing. It would also give borrowers consistency by avoiding servicing transfers. 

These two measures — a new HMBS securitization path and private servicing — are described as essential to strengthening liquidity, encouraging investor participation, and improving the economic performance of the federal insurance fund backing HECMs (the MMI Fund).

Proposed Program Improvements

To make HECMs more accessible and cost-effective, MBA puts forward several concrete reforms:

• Restructure the Upfront Mortgage Insurance Premium (MIP): Currently, HECMs charge a flat upfront MIP based on the home’s value, which penalizes low-balance borrowers who only draw a small portion of available equity. MBA calls instead for a consumption-based MIP, charging based on the amount actually drawn or borrowed. That would lower the barrier to entry for low-need borrowers. To preserve fund safety, MBA suggests offsetting by raising the ongoing MIP (currently 0.5% annually) and increasing the upfront MIP for borrowers refinancing HECMs.
• Adjust the Principal Limit Factors (PLFs): MBA recommends increasing PLFs for older borrowers and adjusting them based on borrower risk profiles. Combined with the restructured MIP, this would make HECMs more affordable without compromising program integrity.
• Modernize Valuation Methodology: The letter urges the FHA to allow use of Automated Valuation Models (AVMs) and wider data sources to assess collateral value. This would streamline property appraisals, reduce costs and delays, and make reverse mortgages more accessible — particularly important for seniors who may face barriers to traditional appraisal processes.
• Revise Life Expectancy Set-Aside (LESA) Requirements: The MBA calls for applying LESAs only to borrowers at high risk of default, rather than mandating them for everyone. Blanket LESA requirements, which set aside a portion of loan proceeds for future obligations, reduce flexibility and can limit the usefulness of HECMs (e.g., for immediate needs like health care or home repairs). A risk-based LESA approach would preserve program safeguards while improving borrower flexibility and acceptance.
• Enhance Counseling Access: Recognizing that reverse mortgages are complex products, MBA advocates expanding counseling capacity and offering remote, digital access to reverse mortgage counseling. Well-informed borrowers are likely to make better decisions, reducing risks of default, misunderstandings, or predatory behavior.

Why These Proposals Matter

The MBA’s letter argues that these reforms, taken together, would lower entry barriers, reduce costs, streamline origination, and improve liquidity, thus making HECM and HMBS more attractive overall to borrowers, lenders, and investors alike. 

Specifically, the MBA argues that a consumption-based upfront MIP and adjusted PLFs would help more lower- and moderate-income seniors access their home equity without being priced out.

The MBA also feels a new HMBS securitization option and private-servicing model would enhance liquidity, lower program costs for FHA, and attract investor interest to support a larger pipeline of reverse mortgages.

In the MBA’s view, these changes are vital not only to preserve — but to strengthen and expand — the ability of the HECM program to help seniors use their home equity for retirement, living expenses, and long-term financial stability. By doing so, HECM and HMBS would continue fulfilling their policy mission, while reducing taxpayer risk and maximizing benefit to older homeowners.