House Financial Services Committee memo on HECM hearing reveals priorities and focus points
This Wednesday the Home Equity Conversion Mortgage program will face the white-hot glare of Congressional oversight and scrutiny. The House Committee on Financial Services will be reviewing the benefits and challenges of the Home Equity Conversion Mortgage- better known as the reverse mortgage.
A September 20th memorandum reveals the witnesses and primary subjects to be discussed. The document was released last Friday to members of the committee to help them prepare for the hearing.
Scheduled witnesses include:
- Sarah Bolling Mancini, Staff Attorney, National Consumer Law Center
- Alicia Puente Cackley, Director, Financial Markets and Community Investment, Government Accountability Office (GAO)
- Peter H. Bell, President & Chief Executive Officer, National Reverse Mortgage Lenders Association (NRMLA)
- Laurie Goodman, Vice President, Housing Financial Policy, Urban Institute
After a brief summary of the HECM the memo details the development of the non-borrowing
spouse policy- a reform that was championed by the committee’s chairwoman Maxine Waters. Also included are the numerous HECM reforms enacted since 2013- the year that the Reverse Mortgage Stabilization Act went into effect. Those reforms include first-year distribution limits, the financial assessment, the partial reimbursement of property charges paid by lenders on behalf of a borrower, and the collateral risk assessment which may require a second appraisal if the valuation exceeds HUD’s AVM (automated-valuation-model).
Issues related to servicing of HECM loans and foreclosures are likely to take center stage. “A recent USA Today article shed light on some of the problems that persist with foreclosures of reverse mortgages despite attempts by Congress and the HUD to improve the program” the memo notes.USA Today reported that a few unscrupulous lenders focused selling reverse mortgages specifically in poor neighborhoods- many which were predominantly black. Some of these homeowners were evicted. Just how many HECM borrowers were actually evicted from their home? That question reveals a significant weakness that still endures in HUD- a lack of data. “The article (USA Today) points out that while regulators claim actual
evictions of seniors are rare, there is no way to verify this claim because HUD does not collect this data, let alone report it.”
In its legislative note the memo references a previously drafted but not enacted bill- House Resolution 4160. The bill would have provided additional protections for non-borrowing spouses and required the immediate assignment of a HECM to HUD when the borrower has passed away and the eligible non-borrowing-spouse remains in the home.
It should be noted, the Congressional memorandum contains a significant error. It incorrectly states that “Since 2013, HUD has limited lump sum payments by reducing the amount that borrowers could draw during the first 12 months of the loan and increased mortgage insurance premiums if initial draws exceed 60 percent of the principal limit”. Mortgagee Letter 2017-12 repealed the two-tiered upfront FHA mortgage insurance premium structure and instead charges a flat upfront two-percent premium regardless of the money taken at closing.