Government funding deal brings relief to reverse mortgage industry (for now)

Congress struck a surprise deal just hours before a key funding deadline, extending government funding for 45 days

Despite fears of an inevitable government shutdown, a last-minute funding deal struck between the Speaker of the U.S. House of Representatives and the chamber’s Democrats now allows reverse mortgage business to continue for 45 additional days.

A group of reverse mortgage industry professionals who spoke with RMD describe their relief at Home Equity Conversion Mortgage (HECM) endorsements being allowed to continue, recalling the disruptive 2018-2019 partial shutdown that obfuscated the industry and its performance metrics for months afterward.

Reverse mortgage reactions

Industry response to the avoidance of a government shutdown was positive, with loan originators, educators and analysts all agreeing that the additional headaches of a shutdown are best avoided.

“When no [continuing resolution] is accepted [in the House of Representatives], like [during] the 2018 government shutdown, the most notable impact for our industry is a delay in HECM endorsements,” observed Understanding Reverse author Dan Hultquist. “[T]hat is a required process for our investors, not [lenders]. There was also a hiccup in 2018 with collateral risk assessment (and second appraisals) but only because those were done manually at that time.”

Business conducted between lenders, the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) tends to be automated, but instances requiring human interaction — such as certain condo approvals for lenders or general customer assistance for borrowers — would be most acutely felt.

“Although unlikely, a prolonged government shutdown could eventually cause issues that could disrupt new loan originations,” Hultquist said. “For example, if a prolonged shutdown impacts liquidity in the mortgage business, lenders may be hesitant to close loans until the shutdown is resolved.”

For George Downey, regional SVP at the Federal Savings Bank in Braintree, Massachusetts, the immediate reaction is one of general frustration with the personalities at the center of the political process.

“Like everyone else [I’m] glad it was averted,” he said. “But I have increased concerns going forward as it demonstrated again the depth of government’s dysfunctionality prioritizing private agendas over the nation’s best interests.”

He continued: “[A shutdown] would have had some perhaps minimal impact on the reverse mortgage industry if it was short-term, but is this a harbinger of what to expect next time when the issues may be greater?”

For John Lunde, president of Reverse Market Insight (RMI), memories of the months-long distortion in industry data that followed the government shutdown in 2019 are best left in the past.

“It’s always good to avoid the shutdown and any disruptions given FHA’s vital role in the reverse mortgage industry,” he said. “We dodged a bullet of distortion in the case assignment and endorsement data.”

Government preparation

Officials in the White House, in Congress and at government agencies had all taken steps in the final hours leading up to the deadline to prepare their workers for the distinct possibility of a shutdown, which many described as “inevitable” in the days leading up to the final deal.

The FHA in an INFO notice explained that consistent with the HUD contingency plan for a lapse in appropriations update in August, the Office of Single Family Housing and its associated mortgage insurance programs would be able to continue most activities through the first week of October.

“However, FHA will lack the authority to endorse Home Equity Conversion Mortgages (HECMs) after September 30, 2023,” the FHA INFO notice read. “HECMs that are not endorsed before the expiration of appropriations on Saturday, September 30, 2023, will not be endorsed for the duration of any lapse in appropriations. FHA will endeavor to complete endorsement of all HECM loan submissions prior to the expiration of its authority to do so.”

FHA also released a HECM-specific INFO notice advising stakeholders of the lack of endorsement authority for new HECM loans that would follow a shutdown, saying “FHA will endeavor to complete endorsement of all HECM loan submissions prior to the expiration of its authority to do so.”

However, associations including the Mortgage Bankers Association (MBA) recently reminded members that the spending bill passed by Congress this time is only temporary, and could set up another potential impasse between the parties in Congress that may run the risk of a shutdown again by late November absent other congressional action.

HUD operational impacts in 2018-19

The last time there was a partial federal government shutdown that impacted services at HUD and FHA, certain technological resources including FHA Connection (FHAC) and the Loan Review System (LRS) were available, but had “limited capability for actions that require FHA staff intervention,” the agency said at the time.

Additionally, while HECM payments to existing borrowers were still made, FHA warned that there would be “limited staff assistance available and longer wait times for assistance” for those reaching out to the agency, including via phone and a support email address.

The FHA Resource Center and its FAQ website also remained available but were not updated during the shutdown.

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