HUD Deputy Secretary: Reverse Mortgage Program Must Be ‘Built to Be Viable’

In a surprise late addition to the speaker lineup at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting & Expo, association President Steve Irwin introduced Brian D. Montgomery, the deputy secretary of the U.S. Department of Housing and Urban Development (HUD) to address the attendees on the status of the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program.

In addition to providing reflective statements on the program’s performance over the course of 2020, Montgomery also gave some forward-looking statements related to the future of the business including for proprietary products, potential impacts of the year’s events on the Mutual Mortgage Insurance (MMI) Fund, and hopes for continued cooperation between government housing officials and the reverse mortgage industry in 2021.

Coronavirus impact

The impact of the COVID-19 coronavirus pandemic on the United States has been pronounced, but it has also helped to lead to an increase in the appreciation of peoples’ homes, as well as a noticeable increase in reverse mortgage business, Montgomery said. This has led HUD to witness an increase in the number of HECM loans by about 30%, Montgomery said, when directly compared to figures from 2019. Appearing to drive the increase in HECM volume were several factors that are both related to and separate from the ongoing pandemic.

Brian D. Montgomery

“[The volume increase has been] spurred, no doubt, by the revival of interest, and a need to stay home,” Montgomery said. “And helped tremendously along by strong home price appreciation and low interest rates. If nothing else, the coronavirus has also put an exclamation point on the desire to keep one group in particular — that being seniors — in their homes, aging in place and of course, staying healthy.” 

Montgomery reiterated some of the relief actions taken by FHA in the early days of the pandemic including guidance on loss mitigation options for COVID-affected borrowers, and a delay of calling loans due and payable in an instance where a borrower may have to enter a healthcare facility due to COVID-19.

FHA Catalyst and its reverse mortgage future

Montgomery also reiterated appraisal relief measures put into place during the pandemic, while also citing the continued incorporation of the FHA Catalyst software platform into reverse mortgage operations. Catalyst’s further incorporation into reverse mortgage business to streamline certain processes — seen earlier this year with the acceptance of digital HECM case binders — is expected to continue into new avenues not previously a part of its prior reverse mortgage feature incorporations.

Montgomery described the wider use of FHA Catalyst as a major assistance for the Department during COVID-19, funded in 2019 by Congress a a point in which HUD could hit the proverbial ground running on the necessity for a greater number of digital solutions to try and mitigate the spread of the virus. Before offering his thanks to HUD Chief Information Officer David Chow and the entire information technology (IT) team at the Department, Montgomery revealed that HECM tasks inside the platform are planned to continue.

“What could have been a crisis, the case binder, with paper piling up in our home ownership centers which we would have been unable to process, instead became an opportunity to demonstrate we are ready, willing and able to fulfill our critical responsibilities in the housing market,” Montgomery said.

HECM submissions through Catalyst for other components beyond case binders can be expected next year, Montgomery shared.

“We plan to soon allow HECM appraisals to be submitted through the Catalyst platform, which we expect to be added in the spring of 2021,” he said. “The hope is that over time, all HECM functions will be brought onto the FHA Catalyst platform.”

HECM has ‘important’ role in helping seniors

While at last year’s NRMLA Annual Meeting & Expo in Nashville the assistant secretary was able to share his further perspectives on the MMI report, this year’s meeting falls earlier in the calendar so he was unable to do that this time. However, despite issues presented by the pandemic, Montgomery relayed his hopes for the improvement of the HECM program inside the MMIF.

“In the 2019 report, we introduced the measure of claims paying capacity that was further evaluated, and demonstrated the position of the FHA fund,” Montgomery says. “In the 2020 report, we will expand that analysis and incorporate very important stress testing. Additional analytical tools will provide our risk team and HUD leadership, what we believe, is necessary to evaluate and make changes to ensure the safety and soundness of the fund going forward.”

While the HECM book of business has improved following the measures that HUD and FHA instituted for the program in 2017 and 2018, there are other difficulties present that must be taken into account in 2020, Montgomery said.

“As you may know, the measure of the MMI Fund’s capital is highly dependent on the net present value from the projected losses. It is also significantly tied to home price appreciation,” Montgomery explained. “While I believe there are positive effects of both our policies and a robust housing market, the coronavirus and loss of employment has produced serious headwinds. We know that pro-cyclical forces can provide a false sense of security.”

None of the difficulties have diminished the view of the HECM program from the perspective of the Department, however.

“The important thing is always for us to understand the consequences and unintended consequences of policies for the borrower, the lender, the HMBS market and obviously taxpayers,” Montgomery said. “We believe HECMs play an important role in helping seniors, and will continue to do so.”

Future collaboration between the industry and the government

While not specifically mentioning the recent outcome of the presidential election and some of the legal maneuvering currently taking place around it, Montgomery related hope that the industry will continue to develop private products and will continue to collaborate with HUD on ways in which the reverse mortgage program can be further strengthened.

“I want to express how much we appreciate the continued input and advice from NRMLA and all of its members,” Montgomery said. “It has been incredibly valuable during this national emergency. Whatever happens next year, I hope HUD and NRMLA continue to work closely together to address the volatility of the HECM program, and continue to work together on structural reform and improve its long-term stability.”

Demographics continue to be strong for HECMs, Montgomery said, so long as the program is “built to be viable,” he said.

“In the end, we must protect seniors who depend on the HECM, while ensuring our program’s financial strength can endure market cycles without taxpayers picking up the bill,” he said.

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