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Reverse mortgages improved, but issues remain says FHA

New FHA official encouraged by reverse mortgage progress, but sees issues in need of more work

While the Federal Housing Administration‘s Home Equity Conversion Mortgage program has seen improved performance, there are still several key areas of concern. That’s according to Julienne Joseph, the FHA’s deputy assistant secretary for single-family housing, who shared her perspective on the space with an audience of reverse mortgage professionals this week.

Joseph arrives in her new role with a useful background – she worked as a loan officer earlier in her career. At the National Reverse Mortgage Lenders Association‘s Virtual Summer Meeting this week, the FHA official offered a surprising level of encouragement about working with the industry in assisting cash-strapped seniors.

Joseph noted that HECM endorsement volume has remained over 4,000 units per month for most of 2021, a solid volume for what is still a relatively niche space. But she also quickly got to a few pain points: the growing trend toward HECM-to-HECM refinance transactions, as well as the transition away from using the London Interbank Offered Rate (LIBOR) index for adjustable-rate reverse mortgages.

Reverse mortgage industry performance

The FHA is encouraged by the performance of the HECM program, Joseph said at the NRMLA conference.

“Last month, FHA insured over 4,000 HECMs originated by many of you and others in your organization,” Joseph said. “And as of June 30, we had active insurance on more than 418,000 HECMs with a maximum claim amount of almost $125 billion. And after declining in fiscal year 2019, our volume started to increase again last year. And this includes us seeing a significant increase in HECM-to-HECM refinance activity.”

Some analysts have expressed concern about the volume of refinance transactions taking place relative to the origination of new HECM loans, but the FHA’s focus appears to be more centered on the standalone capital ratio of the program. While acknowledging that significant progress has been made when comparing capital ratios publicized at the conclusion of recent fiscal years, FHA nevertheless remains somewhat concerned over the performance of the HECM portfolio, she said.

“While the financial performance of FHA’s HECM portfolio has really improved significantly by the end of the last fiscal year, the fact that the portfolio still has a slightly negative standalone capital ratio of -0.78% is something that we need to continue to examine and understand,” Joseph explained. “While we can’t make any predictions on where we’ll end fiscal year 2021, because of so many factors, right now, our HECM volume is on pace with last year’s numbers.”

Last year’s HECM volume finished on a strong note by rising 27.3% to 44,661 loans for the full 2020 calendar year, according to data compiled by Reverse Market Insight (RMI). Still, Joseph indicated that action to improve the program should happen as quickly as possible.


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“For fiscal year 2021 through June, there have been almost 37,000 new endorsements,” she said. “Future volume predictions aside, I don’t think we can wait for the future to be upon us before we act. The pandemic will subside at some point, and I believe we will take from it a stronger model for doing mortgage business in both times of crisis and in the times of prosperity.”

Optimism on working with the reverse mortgage industry

Joseph relayed to the industry audience a great deal of optimism in terms of working with NRMLA and other stakeholders to help refine the HECM program, as well as appreciation for the work of the association, its membership and reverse mortgage professionals across the country.

“FHA has enjoyed a longstanding relationship with NRMLA,” she said. “And although we are not always in perfect alignment with every issue, we respect the fact that your queries have the intent of doing what’s right for our nation’s seniors, and we appreciate that. We value that from you, and you’ve been right there with us. We’ve worked on the initial LIBOR transition, you’ve been nothing more than supportive of our work to publish the HECM section of the single family housing policy handbook, and we appreciate your support of our recent non-borrowing spouse (NBS) policy changes.”

While supportive of the recent NBS provisions, NRMLA did submit a letter in hopes of receiving some key clarifications on the guidance. Nevertheless, Joseph acknowledged that the industry is awaiting additional word on how the LIBOR index will be applied to the existing HECM book of business, and also said that additional operational changes will continue to be discussed with industry stakeholders.

“It’s often said that it takes a village to raise a child. So, I say it takes all of us to make FHA’s HECM program a viable one for senior homeowners who want or need to use the equity in their homes to maintain and sustain their lives post-retirement,” she said. “And I want to say to you that FHA appreciates the many letters and other correspondence you send to us on behalf of your constituency. And we hear you, we’re listening to you, and we take under serious advisement the recommendations that you make. So, please continue to stay in communication with us, we value it. That’s the only way that we can continue to get better is to receive that feedback from you all.”

Joseph also provided some additional perspective on the Biden administration’s overarching attitude toward the HECM program, which appears to be focused on efficiency and serving an often underserved population according to the thoughts shared.

“Like all HUD and FHA programs under the new administration, we need to look at the HECM program, both its benefits and where we have areas of operational challenge,” she said. “But I firmly believe that with that challenge comes opportunity. And I view that working on them will allow HUD, FHA and our Office of Single Family Housing to be a part of a real, sustainable solution that will carry all involved in the reverse mortgage industry forward in many new ways.”

Earlier, Joseph shared that she has direct experience with the HECM program by working as a loan originator, and had seen firsthand how a HECM had the ability to help a couple accomplish their goals of aging in place, and to pass on home equity to their children after satisfying their loan’s balance. She ended her initial thoughts looking back at that experience.

“If not for FHA’s HECM program, it’s unlikely that scenario would have played out the way that it did,” she said, referring to the couple who successfully used a HECM in retirement. “So I look forward to working with you today, tomorrow and in the future, just to make meaningful changes to housing and housing-related policies that affect our nation’s senior population.”

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