The Federal Housing Administration (FHA) is encouraged by the increasing health of the Home Equity Conversion Mortgage (HECM) program inside the Mutual Mortgage Insurance Fund (MMIF) as revealed by the department’s annual report to Congress last week, but must continue to address  remaining deficiencies in it after a series of major changes in 2017 and 2018. Among the issues remaining to be addressed are the volatility and long-term strength and viability of the program in the future.

This is according to remarks made by FHA Commissioner and Acting Deputy Secretary of the Department of Housing and Urban Development (HUD) Brian D. Montgomery in a keynote speech at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville on Monday.

“We’ve seen the improvements [in the HECM program] over the past year, and we know that it is not enough,” Montgomery said. “It is not self-sustaining, and while the state of the economy is important to the improvement, the time to fix the roof is when the sun is shining.”

Stabilizing the program for the long-term will mean putting the HECM program into a position where it does not rely on a subsidy from the forward mortgage book of business within the Mutual Mortgage Insurance Fund (MMIF), and while proprietary product innovations are welcome, FHA must ensure that the HECM market is not overwhelmingly shouldered by the federal government, he said.

FHA will continue to seek input from the reverse mortgage industry, which will better allow those within the government to understand the intricacies and potential impacts of any proposed HECM program policy changes, Montgomery said. Part of this is rooted in the impacts that were observed by the major program changes in 2017 and 2018.

“While PLF changes in 2017 and appraisal bias mitigation policies instituted in 2018 are important, they are not long-term solutions,” Montgomery said. “We need to discuss structural issues.”

While addressing that the HECM program has remaining structural issues, the improvement of the program within the MMIF should not be understated, Montgomery said. Specifically citing the more than 50% improvement in the HECM program’s capital ratio compared with its standing one year ago, part of the improvement in the overall health of the program can be attributed to program changes like PLF cuts and the added possibility of a second appraisal having their “intended effects,” Montgomery said.

The addition of the collateral risk assessment alone, according to Montgomery, helped to add $250 million to the HECM program within the MMIF.

“This is a marked improvement, but of course still negative,” he said. “The HECM portfolio shows dramatic improvement due to program changes, along with the health of the economy and housing market.”

Another positive sign for the industry, Montgomery said, is the influx of private reverse mortgage products in answer to a question posed by  NRMLA CEO Peter Bell. FHA’s perspective concerning the increasing proliferation of proprietary reverse mortgages is that the agency finds it very encouraging, Montgomery said.

“I feel like the CEO of a $1.4 trillion corporation that doesn’t have to make a profit,” Montgomery said to laughter. “We don’t view our success in terms of market share. We want the private sector to come up with proprietary products.”

Montgomery previously alluded to the possibility of additional HECM program changes in a call with reporters shortly after the release of HUD’s annual report to Congress. After recently being nominated to serve in a full-time capacity as Deputy HUD Secretary, Montgomery is scheduled to appear at a Senate confirmation hearing on Wednesday morning.