The previous four years brought with them an abundance of change for the reverse mortgage industry. From program changes implemented in late 2017, to changes in rules governing originations on condominiums through the response to the COVID-19 coronavirus pandemic, the U.S. Department of Housing and Urban Development (HUD) had a key role in shaping the industry’s trajectory and how it would be affected by a whole host of disruptive events.

One man who had a front seat to many of the most pivotal events the industry oversaw over the past few years has been Brian D. Montgomery, who has a long history of public service. Originally serving as FHA Commissioner from May of 2005 to July of 2009 primarily in the George W. Bush administration, Montgomery served in the role for six months under President Barack Obama.

Then in the Donald Trump administration, Montgomery was sworn in as FHA Commissioner in June of 2018. In January 2019, he became Acting Deputy Secretary of HUD following the resignation of previous Deputy Secretary Pam Patenaude, and he held both roles until confirmed as Deputy Secretary in May 2020. In that role, he served until January 20, 2021 with the inauguration of President Joe Biden.

Montgomery, who has made himself available to the reverse mortgage industry on multiple occasions in the past, agreed to sit down with RMD to reflect on his latest, eventful time serving in the housing arm of the federal government.

This interview will be presented in two parts, with the second part coming soon. It has been lightly edited only for concision and readability.

Mr. Deputy Secretary, thank you for speaking with RMD today. You recently told the reverse mortgage industry at the virtual NRMLA Annual Meeting in November that the HECM program must be “built to be viable.” What do you think are some of the bigger issues that the industry can address to make HECM successful in the long-term? Can they make those changes without the government, or do those changes need to be made “hand-in-hand,” so to speak?

Thanks, Chris. I appreciate the time and appreciate the question. There’s no doubt that obviously, the FHA HECM continues to dominate the reverse mortgage space. And the recent increase of loan limits, I think we’re up to $822,375 now, certainly puts some squeeze on the expansion of any proprietary products, any number of those I know are out on the marketplace.

But on some of the larger issues, it’s no mystery that the industry and FHA always need to work together on a lot of different issues, including reducing the cost of servicing the assigned portfolio, or always looking for ways to improve the property disposition process. And again, it’s only by working together, I think, that those solutions can become reality. I know there are other other things that were presented to us when we were in office. Certainly, there’s an interest in the industry around allowing servicers to retain servicing at the 98% threshold, and I can certainly understand their perspective on it.

But speaking of course as a former government employee, we would certainly need to make sure that the incentives — if we were to do that — were properly aligned. And, I also think there is some room for more creativity and innovation in the disposition process. I think FHA understands that, so I would just encourage the industry to continue to work with FHA on that topic.

Private product production slowed down notably in 2020, and HECM reasserted its place in “first position,” so to speak. What do you think the role of private products should be while HECM continues to be the industry’s driving force?

As I tell folks, there’s a reason the product is offered from a government agency. HUD has a social mission with vulnerable populations, but it’s comforting to have the full faith and credit of the U.S. government behind it. But on that topic, look: it’s important to first and foremost protect the HECM product.

I don’t need to tell your readers, the fiscal situation with the HECM product through the years has been somewhat precarious. It has improved dramatically, although the standalone capital ratio is still negative, albeit barely negative. And I do think, generally on the topic of equity extraction, I am aware there are other products out there being developed and deployed, again, not speaking of one lender over another, I’m trying to keep this sufficiently vague. But, I think they’re doing so for the obvious reasons, asking: can they help seniors? Can they be profitable doing so?

It’s good to have the HECM product there, though, for a lot of reasons. First and foremost, a lot of seniors still  rely solely on their Social Security as their source of retirement funding. So, whether it’s HECMs or some other equity extraction, or some proprietary products, I think that need is only going to continue to grow.

I understand you came back to the government just about a year into the Trump administration. But compared with where you understand HECM was at the end of the second Obama term and the position it currently holds between Secretary Carson’s tenure and Secretary-designate Fudge’s tenure, what do you think of the program’s health now? And in general, what do you think is keeping reverse mortgage market penetration as low as it is?

I generally try to avoid comparisons across administrations with respect to FHA because quite frankly, I think it acts more like a corporation than a government agency, albeit with a defined social mission, meaning we have to be “profitable.” Government doesn’t use that term, but for descriptive purposes I will.

And the MMI Fund, it’s not a person, but even if it were, it wouldn’t really care who the president is, or who the FHA Commissioner is. (laughs) To my point about it functioning like a corporation, you have to protect the MMI Fund’s value. And so, we need to make sure that the cash inflows exceed the cash outlays. I know your readers are very familiar with problems of the portfolio over the years, and early on in the Trump administration — before I got there — Dana Wade when she was Acting [FHA] Commissioner made the right decisions, and had to make some decisions [to make] sure and try to keep the credit subsidy negative, or keep the capital ratio high.

Remember the reduction to the PLF. And then later, looking at collateral risk, the appraisal validation, making changes to that. And so, between that and the house price appreciation, to answer your question, just looking at it in hard numbers, the portfolio is in far better shape now than it was four years ago. But, vigilance can’t be let down, they have to continue to be focused on it.

Just to be clear, though, dramatic house price appreciation was the primary driver of the value, given the net present value test. If your asset has increased in value, that helps stem the tide against potential losses. But, house price appreciation can — as we all know — turn into house price depreciation. So, my earlier point is just that regardless of who’s president or who’s HUD Secretary or FHA Commissioner, they must be laser-focused on the care and feeding of the MMI Fund.

I know that one of the major initiatives that you sought was greater consolidation and expansion of the technology that the department uses. What role do you think that’s going to play in the HECM book?

Certainly in the area of claims, for one. I frequently tell people it took us some time to get Congress to come around on getting FHA the funding they did almost two years ago, and have since then. So, the team worked in a tremendous effort between FHA, the CIO’s office and elsewhere, and set up the claims module a little more than a year ago. Could you imagine with all these supplemental claims, and now the impending partial claims? And we had to do that on paper. Now, we can do all that electronically.

You would have had millions of pieces of paper piling up in homeownership centers, where nobody was there, because everybody was working remotely. So, that’s just one example. A lot of that will be felt more profoundly on the forward side of the book, but the technology is so nimble, that we’re deploying it in multifamily housing. And, we’re deploying it in our healthcare programs, and in public and Native American housing with the Native American homebuying program.

So, it’ll allow FHA — just for the claims alone — to save tens of millions of dollars, which obviously will be felt in the industry as well, in a good way. So I can’t say enough about FHA Catalyst, and how much we were able to get done in a relatively short amount of time. I’ll be optimistic that the new team will continue that effort.

Many in the reverse mortgage industry likely don’t fully understand the magnitude of all of the jobs that you’ve held over the past few years. Can you speak about the process of making HECM program changes? What do you think the industry should understand about the magnitude of the decisions HUD has had to make regarding HECM, particularly when it has so many other priorities that it has to give service to?

I appreciate this question, because for a period of time I was drinking from an open fire hose! (laughs) Because I was serving concurrently as FHA Commissioner, Assistant Secretary of Housing, and Acting Deputy Secretary for almost a year-and-a-half. I used to call it “three titles, one paycheck.”

But in May of 2020, when I was confirmed as Deputy Secretary, and then soon followed by Dana Waid’s confirmation as FHA Commissioner, I was able to shed the day-to-day responsibility of running the FHA. But as Deputy Secretary, I still oversaw FHA, Ginnie Mae, our Chief Financial Officer, our CIO, administration division, and of course, our field policy and offices. But in terms of government programs, it’s literally like trying to turn a cruise ship. It’s just unwieldy, it’s time consuming, and it’s a lengthy and complex process.

It’s got a lot of moving parts. Whether you’re changing policy, there’s obviously legal ramifications, there could be a budgetary impact. Depending on whether or not you want to do legislation or rulemaking, it can take many years to get something done. Look at some of the things we’re still trying to get over the finish line related to non-borrowing spouses and other things, we weren’t quite able to get up over the finish line, just because they take so long.

But again, seniors are part of HUD’s mission in serving vulnerable populations. And obviously, HECMs go a long way toward serving that population. So, I can tell you it’s a responsibility that HUD takes very seriously.

Look for part two of our exclusive interview with Former Deputy Secretary Montgomery soon, where he discusses helping shape HUD’s response to the COVID-19 pandemic, some of the relief granted to the HECM program over the past year, and whether or not he had direct conversations about reverse mortgages with President Donald Trump.