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Without Congressional Authority FHA is Faced with Hard Choices
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HUD would prefer to take the surgeon’s approach making fine tuned adjustments to the federally-insured reverse mortgage or HECM program. Presently it is left with the axe of harsh change unless Congress acts to give them the authority needed before the beginning of next fiscal year October 1st. The blunt approach was mentioned in a recent Senate Banking Committee hearing last week when Assistant Secretary of HUD Carol Galante reassured senators that they have no plans to bring back the standard fixed rate product.
Assistant Secretary Galante mentioned another option…more principal limit reductions across the board. “If we can’t make those nuanced changes, we are going to have to say the entire amount [that can be borrowed] is going to be just lowered for everybody across the board.”
6 Comments
Hopefully the programs will be retained and credit checks will be required which should help reduce foreclosures because of non-payment of property charges. Hopefully, having to use AMCs will be eliminated and return to using local appraisers. I don’t know of anyone in the mortgage/real estate business that likes the use of AMCs or think they are a good idea.
Counting on Congress to act in a timely way is being overly optimistic, in my opinion. I’m expecting the worst and hoping to be pleasantly surprised.
Are we introducing a “sub prime” hecm for those with less than perfect credit?
That’s what it looks like to me.
Let us be clear, the problem is not that of Congress but rather of FHA’s own doing. Long before we or the general public became aware of a dramatic increase in the default rate for failure to pay property charges, FHA was supposedly working on a fix. That never took off until NRMLA and NCOA acting informally and improperly began counseling for HECM nonpayment of property charge defaults which FHA quickly adopted.
The real problem with the MMI Fund and for FHA not being able to make the obviously needed changes is FHA refusal, which continues today, to follow the normal rule changing process. All of these problems were known over three years ago. If FHA had acted then or at any time in the last two years, adoption of those changes would be well down the road (if not be there by now) in getting the changes they need. But, no, FHA wants the authority to basically change the HECM at will. However, FHA history shows us that even if FHA receives the requested authority, it will take massive loses to convince FHA to change to what is needed. (Is FHA just lazy, too bureaucratic or is some hidden agenda at work here? Several believe the latter.)
It is good that the House Financial Services Committee has passed a bill to terminate the HECM program. The odds of enactment are very low but FHA needs to follow the rules rather than waiting until it reaches the cliff before saying FHA declares that its hands are now tied and change cannot come fast enough.
With the question of FHA getting the requested authority already in the air, where is the proposed rule changes in the rule changing process? We all know the answer to that which is a clear sign of the commitment of FHA to the changes they now want to make but as usual the known specifics have yet to be specified. In government speak this is one of those uncommitted but deep commitments.
Now to fixed rate Standards, It is silly that anyone in the industry would be surprised by Commissioner Galante very clearly stating that the fixed rate Standard is eliminated, period. it is just like our industry that when Mortgagee Letter 2013-1 was released, the ultra optimists declared that the word consolidation was secret code for suspension and yet the word suspension is nowhere to be found in the Mortgagee Letter nor is the term “temporarily consolidated” to be found there. Yet it is highly likely that many heard sales managers and lender reps around the country declaring that the Mortgagee Letter was not the end of fixed rate Standards, just their suspension until things get better. You know the same kind of thing we have heard for almost three years about endorsement levels with the caveat about get ready for a sudden spike in new endorsements to over 100,000 this fiscal year. Well, I for one have been waiting, and waiting…. Call me a continuing skeptic.
Cynic, Right on the money with regards to HUD’s failure to supervise the HECM program competently and to follow established protocol in enacting changes to it. HUD has a long history of neglect in regards to the HECM program and they don’t have a very good track record in implementing guideline changes through Mortgagee Letters. If they had acted appropriately much earlier on they would not be in this “crisis management” mode they find themselves in. My advice is for Congress to act to allow HUD to make the changes (“fixes”) they are requesting but not to grant them authority to make changes beyond that outside of established protocols.
Personally, I think the stabilized housing market will prove to be what makes the HECM program “sustainable”, not Financial Assessment as we have chosen to call Credit Underwriting.
HUD’s failure to act in a timely manner has resulted in them now wanting to circumvent the established process of making changes. Commissioner Galante’s statement that there is no intention to return the Standard Fixed Rate option versus the original statement of a 2yr. suspension makes me lean towards Congress not giving HUD the power to change. It probably would be better and safer to the HECM program for another Principal Limit Reduction across the board versus giving HUD authority to make changes to the program whenever they want.