Senior officials with the U.S. Department of Housing and Urban Development (HUD) recently reiterated an ongoing commitment to the Home Equity Conversion Mortgage (HECM) program, describing the program as a critical factor in promoting aging in place and offering seniors another option to create cash flow.

This is according to senior officials in a recent discussion relating to HUD’s Office of Housing and its efforts to boost housing affordability and supply in furtherance of the Biden administration’s agenda to address housing instability among vulnerable populations.

Commitment to HECM

A key reason that the HECM program remains important in the eyes of HUD is due to its uniquely focused mission in serving seniors who are seeking financial options, according to senior HUD officials who addressed the program.

“The HECM program is a very important program, particularly at a time where many seniors who are on a fixed income and who maybe don’t have enough income for a refinance are sitting on a lot of home equity,” a senior official said. “The reverse mortgage product does enable them to access that equity, which is its great strength.”

Another key component of the HECM program’s benefits in terms of the government’s mission to address homeownership and housing stock is when a HECM property is assigned to HUD, an official said.

“It’s not really a supply-oriented program, in that people who get a HECM mortgage, by definition, are already [residing] in their property,” an official explained. “It is important that if there are situations where a HECM property ultimately goes to claim — whether it’s because the borrower is deceased, or something else happens — it is very important for us to provide that first look on those properties, so that those properties can remain in homeownership with a new owner.”

Tying into boosting availability

The HECM program is not one that can be directly utilized for the purpose of increasing housing supply, however that’s not to say that properties that go to assignment are disallowed from being leveraged to further promote homeownership to previously disadvantaged populations, the official said.

Late last year, HUD announced a competitive bid note sale made up entirely of properties that were secured by HECM loans in which the borrower had passed away and is not survived by a non-borrowing spouse (NBS). That sale was followed by another announced in early 2022 which was described as the first-ever HUD-held single-family note sale exclusively for mission-driven non-profits and units of state and local government.

“This administration has really pivoted to emphasize the importance of making sure that on any property that HUD is insuring that there is an opportunity for that property, whatever disposition path it goes through, to have a first-look period,” a senior official said. “[During that period,] homeowners, nonprofits or mission-focused buyers who acquire properties to rehab and then resell to an owner occupant have the first opportunity [to acquire] these properties prior to investor purchases. Whether those are small, medium or large investors, we want that homeownership opportunity to come first.”

After the sale took place in June, New Jersey Community Capital — which describes itself as “the state of New Jersey’s largest community development financial institution (CDFI)” — announced it had purchased 169 non-performing HECM loans from HUD which marked the first transaction of its kind to be completed at this scale with collaborating nonprofits.

“Nonprofit participation in transactions such as this is essential to creating vibrant, equitable communities, especially as we confront a national housing crisis,” said Bernel Hall, president and CEO of New Jersey Community Capital shortly after the sale was completed. “We are grateful for the collaboration with our partners and look forward to working with more mission-aligned nonprofit and for-profit institutions to create quality affordable housing across the country.”

Biden administration’s other big HECM action

One of the biggest HECM-relevant actions taken by the White House so far into President Biden’s term is the implementation of a Homeowners Assistance Fund (HAF) of $10 billion, designed to alleviate financial hardship for those impacted by the COVID-19 coronavirus pandemic. The HAF funding allocation was part of the American Rescue Plan Act signed into law by the president in early 2021.

HAF funds are available to reverse mortgage borrowers who need assistance covering their loan obligations including property taxes and homeowners insurance, or homeowners association (HOA) fees if applicable. However, uptake of the HAF funds in the reverse mortgage space have been sluggish according to a pair of longtime reverse mortgage industry servicing professionals who spoke to an industry audience at a conference in May.

A sluggish rollout of 50 different state relief programs as well as lacking education on the topic has depressed the potential reach of HAF funds for reverse mortgage borrowers according to Gail Balettie of Celink and Leslie Flynne of RMS/Ocwen Financial during a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting.

At the event, Flynne urged the audience of assembled reverse mortgage loan originators to get in touch with their borrowers and provide information about the assistance if they need it, arguing that those in most direct contact with borrowers are best suited to communicate the benefits.

“I just want to tell you that [the HAF] is an absolute godsend to people who have run out of money and cannot pay their taxes and insurance,” Flynne said. “It’s a gift from the U.S. government. All they have to do is apply, but unfortunately, we can’t get borrowers to apply. It’s unbelievable, but what we need you to do [is get your affected borrowers to apply].”