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Bill Would Fast-Track HECM Changes
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The newly introduced “HECM Stabilization Act of 2013”, or Senate Bill 469, would give FHA the Congressional authority to make sweeping changes to the federally-insured reverse mortgage program. Sponsored by US Senator Robert Menendez the bill would allow to make ‘much needed’ reforms rather than delay them with the long and arduous rule-making process. Perhaps the bill should be named the “HECM Reconstruction Act of 2013” as it will give the agency free reign in reshaping the program to reduce it’s risk and consequently change the demographic the HECM program traditionally served.
8 Comments
Why kill Fixed if you are going to limit lump sum .
Tom,
That’s a very good point. It’s been hinted at in several comments that lump sums will be restricted in some fashion for remaining products. Time will reveal the truth by August I would suspect.
Tom,
Since when is the fixed rate being killed? After 3/31/2013 FHA allows the fixed rate Saver.
The HECM program is in trouble. It is so bad that it was used by just one Senator to hold up the confirmation of Acting FHA Commissioner Galante to FHA Commissioner. the Senator talked about a 2 year moratorium of the entire program. Action had to be immediate and was.
The new bill may never pass Congress and even if it does, it could take months if not years. Even though both the House and the Senate had passed essentially the same FHA bill, it sat around for almost two years before being incorporated into HERA.
Then one has to ask will the cap on lump-sums be implemented unless the borrower meets certain parameters. There is so much unknown that crying over spilled milk seems a little premature.
Can we get a link to the bill please?
Thanks,
Larry Armstrong
Larry,
I’ve checked and I can only see that it hasn’t been officially posted yet.
http://www.govtrack.us/congress/bills/113/s469
http://thomas.loc.gov/cgi-bin/query/z?c113:S.469:
There will bet ypical political mismanagement and double speaak as soon as they get their hands on this product. Why not limit lump sum to Moartgage payoffs and purchases where it is best used. By limiting the use of the product, they will have a much smalller base to spread the impact of the losses, whereas if we grew the endorsements to a much larger number, 500,000 to 750,000 would enable us to maintain higher quality of loans, thus reducing the forclosures base. Not too many fixed rate 30 year mortgages with 20% down were foreclosed on.
Bill,
What you are presenting is the law of large numbers, a common rationalization for insurance. While it is true that the law works, it only works in a limited context. For example, if the price of the insurance cannot cover the losses the insurance company will incur, getting even more policies out to the public will only increase the yet to be realized loss. That is why insurance companies employ so many actuaries.
With HECMs, larger numbers of endorsed fixed rate Standards based on prior pricing and then current Principal Limit Factors would have only resulted in even more expected losses.
It is interesting you allude to 30 year fixed rate forward (I assume) mortgages. In their case, the risk diminishes the longer the mortgage is active and eventually goes away. With a fixed rate HECM Standard the risk from the increasing debt only increases with time. It is offset when home value is growing but it is exacerbated when home value is falling. That is because for repayment purposes a HECM is a collaterally structured loan while a 30 year fixed rate forward mortgage is capacity structured.
FHA is the hand which feeds us. Without them, we for all practical purposes have no industry. To deride it by accusing them of expected mismanagement and lack of transparency seems like a very poor tactic especially after 23 fiscal years of providing a great program for seniors.
No doubt most of us have chuckled about the oxymoron “We’re from the government and we’re here to help you”.
But in reality, its no laughing matter…and certainly not unusual…to feel angst whenever policy-wonks, bureacrats, and law-makers seek to “help” by creating or changing laws and regulations.