What the Experts Say About Recent Changes to the FHA Insured Reverse Mortgage

The National Reverse Mortgage Lenders Association (NRMLA) had the following to say about their keynote speaker's presentation in mid May 2019:

"In his keynote address at this week’s Eastern Regional Meeting in New York, Deputy HUD Secretary/Federal Housing Administration Commissioner Brian Montgomery reaffirmed his commitment to making the Home Equity Conversion Mortgage a viable option for consumers who wish to age in place and for businesses that want to originate and service loans. He further noted that collateral risk assessment, combined with previously enacted program changes in 2017, are having a positive financial impact on the Mutual Mortgage Insurance fund." Commissioner Montgomery specifically stated: "'“These changes will help assure the viability of the HECM program going forward. Most recent financial estimates are encouraging, showing that the effect on the MMI fund is improving.'” For more information, see https://www.nrmlaonline.org/2019/05/24/health-of-the-hecm-program-improving . Home Equity Conversion Mortgages are also known as HECMs.

Yet in a recent blog (see https://www.urban.org/urban-wire/fha-can-improve-its-reverse-mortgage-program-changing-servicing-protocol ) coauthored by Laurie Goodman, a VP at the Urban Institute, and Edward Golding, a former HUD executive, the following was stated:

“'In an era when seniors are sitting on a mountain of housing wealth and having anxiety about their finances, this should be a well-used program,' the blog post reads. 'Instead, despite a growing number of seniors, participation has dropped from 73,112 mortgages in fiscal year 2011 to 48,327 mortgages in 2018.'” In an article summarizing the blog, Chris Clow, "a professional writer for Reverse Mortgage Daily," states the following:

"In that same period of time, FHA made a series of changes designed to return the program to financial health while also limiting the scope of potential participants by increasing upfront costs and reducing the amount of loan proceeds that can be taken out upfront. All of these changes reduced program participation while it has remained in poor financial health..."

These are two sides of the same basic issue. While each is sure their position is correct, the judge as to who is right about continuing losses for the HECM program are the independent actuaries who annually review the financial situation of the HECMs accounted for in the Mutual Mortgage Insurance Fund (MMIF). As of September 30, 2018, HUD said the value of the HECMs (and other related assets) in the MMIF was a negative $13.634 billion. The actuaries found that estimated loss to be reasonable.

Yet on the other hand, senior demand has shriveled to where current senior demand is about 30% of what it was in fiscal 2009 and many seniors who could have used the loan in the past are simply ineligible to do so today.

The views of the current FHA Commissioner (who was also the FHA Commissioner for a four year period in the middle aught years of this century) and Edward Golding, a former HUD/FHA executive could not be more different. The FHA Commissioner is more focused on the losses that HECMs produce in the MMIF while the focus of the former HUD executive is fixed on lower HECM volume. In practice it seems as if you try to fix the loss problem, fewer seniors can get HECMs and vice versa.

Laurie Goodman and Edward Golding want us to perceive fixing servicing issues as a means of lowering losses in the MMIF yet fixing servicing losses could be helpful to the actual losses ultimately incurred by HUD, it is doubtful if it will impact the actuarially determined losses until it can be clearly shown that their idea will actually reduce losses and by how much.

So who is right? Which of these changes will be able to quickly turn the situation around so that more seniors get what they need and at the same time minimize losses accruing in the MMIF?