HUD Invites Comment on Non-Borrowing Spouse Letter

As a follow-up to our last post, HUD has requested that interested parties comment on the new requirements.  Here is their summary:

“On April 25, 2014, the Federal Housing Administration (FHA) issued Mortgagee Letter 2014-07, announcing the amendment to HECM program regulations and requirements concerning due and payable status where there is a Non-Borrowing Spouse at the time of loan closing, consistent with the authority to make such changes by the Reverse Mortgage Stabilization Act, signed into law on August 9, 2013. The new HECM requirements are necessary in order to ensure the financial viability of the HECM program and the Mutual Mortgage Insurance Fund (Fund), and to comply with the statutory requirement concerning the Secretary’s fiduciary duty to the Fund. The new HECM requirements will take effect for case numbers assigned on or after August 4, 2014. This notice solicits comment for a period of 30 days on the new requirements announced in Mortgagee Letter 2014-07.”

The entire notice from the Office of the Federal Register can be seen here:

https://www.federalregister.gov/articles/2014/05/02/2014-10102/home-equity-conversion-mortgage-hecm-program-non-borrowing-spouse-solicitation-of-comment

 

No Reduction of FHA Mortgage Insurance

from National Mortgage News Tuesday, April 15, 2014

 FHA’s Galante Offers Alternatives to Rolling Back MI Premiums

The Department of Housing and Urban Development is pushing back against industry groups calling for the Federal Housing Administration to reduce or rebalance its mortgage insurance premiums.

“Now is not the right time to do a wholesale rollback of mortgage insurance premiums,” FHA Commissioner Carol Galante told a group of mortgage bankers on Wednesday. “We have a long to go to meet our statutorily required 2% capital reserve ratio.”

Three industry groups have urged FHA to rebalance its 1.35% annual MI premium and its 1.75% upfront MI premium to make FHA loans more affordable. But such a change would reduce FHA revenue.

The commissioner stressed that it’s important to strengthen the FHA single-family mortgage insurance fund and find other ways to increase access to credit. “We must do both,” she told attendees at the Mortgage Bankers Association’s Washington Policy Conference.

HUD is moving ahead with a housing counseling program called HAWK (Homeowners Armed with Knowledge) that will reward FHA borrowers that receive counseling. “That means lower upfront MI premiums at closing and a permanent reduction in the annual premiums after several years or both,” Galante said. She indicated that the details of the HAWK program will be announced very soon.

“Housing counsel in our mind is very important. We know the borrowers who receive counseling are up to 30% less likely to default on their mortgage than buyers who don’t,” she said.

The FHA is also working on creating a new performance measure that might reward lenders for extending credit to lower-score borrowers.

Lenders have been complaining for some time that a compare ratio FHA currently uses to measure lender performance leads to conservative underwriting in an environment where credit is already tight.

“We have heard loud and clear from lenders,” the FHA commissioner said, that the compare ratio has resulted in a “race to the top” in terms of credit quality.

“FHA is coming up with another performance metric that is maybe more sensitive to bucketing by credit scores for example,” she said. “We will be ready to speak about the specifics of this fairly soon.”

June 2013 Scorecard on Administration’s Comprehensive Housing Initiative

An interesting report on the state of the housing market today.  An excerpt:

“”The President’s housing market recovery efforts began immediately
after taking office in February 2009. The June 2013 housing
scorecard includes key indicators of market health and results of the
Administration’s comprehensive response, as outlined above:
• The Administration’s foreclosure mitigation programs
are providing relief for millions of homeowners as we
continue to recover from an unprecedented housing
crisis. More than 1.6 million homeowner assistance actions
have taken place through the Making Home Affordable Program,
including more than 1.2 million permanent modifications through
the Home Affordable Modification Program (HAMP), while the
Federal Housing Administration (FHA) has offered more than
1.8 million loss mitigation and early delinquency interventions.
The Administration’s programs continue to encourage improved
standards and processes in the industry, with HOPE Now lenders
offering families and individuals more than 3.6 million proprietary
mortgage modifications through April.
• Homeowners in HAMP continue to benefit from
significant payment relief increasing the long-term
likelihood of avoiding foreclosure. As of May, more
than 1.2 million homeowners have received a permanent
modification through HAMP, saving approximately $547
on their mortgage payments each month – a 39 percent
savings from their previous payment. In May, 69 percent of
homeowners with eligible non-GSE mortgages benefited from
principal reduction with their HAMP modification. Homeowners
currently in permanent HAMP modifications have been granted
an estimated $10.6 billion in total principal reduction.
View the Making Home Affordable Program Report with data
through May 2013.
Given the current fragility and recognizing that recovery will take
place over time, the Administration remains committed to its efforts
to prevent avoidable foreclosures and stabilize the housing market.””

Read the full report here:

Click to access huddoc

HECM Cap Suspension Extended

The suspension of the cap on the number of Home Equity Conversion Mortgage (HECM) reverse mortgages that can be endorsed by the FHA has been extended again.

The House Appropriations Committee passed a Fiscal Year 2014 appropriations bill for the U.S. Department of Housing and Urban Development that extends by one year the suspension of the cap on the number of HECMs that the Federal Housing Administration can insure.

The bill – approved by a 28-20 vote – would extend the suspension until September 30, 2014.

As originally enacted in 1987, the HECM statute contained a volume cap of 2,500 loans.  That was increased by various increments several times, and finally to 275,000 loans permitted in 2006. Since that time, the cap has not increased but has been temporarily suspended, and the suspension was extended numerous times.

MBA Testimony to Financial Services Subcommittee: Steps to Strengthen FHA

On April 10, David H. Stevens, President and CEO of the Mortgage Bankers Association, testified before a House of Representatives’ Financial Services Subcommittee.  Mr. Stevens’ oral testimony was released by the MBA to its members.

Stevens highlighted the steps that FHA has implemented to address losses in its single-family portfolio, like raising insurance premiums and increasing down payment requirements.  He lauds FHA as “moving swiftly to protect taxpayers and the (MMI) fund,” while citing rising FHA average credit scores.  Stevens then outlines three priorities MBA identifies as necessary in future programmatic changes within FHA:

1. Restoring financial solvency
2. Preserving FHA’s critical housing mission
3. Maintaining FHA’s countercyclical role.

Stevens also listed “a number of steps to further strengthen FHA and promote the return of private capital,’ such as lowering loan limits that were necessary at the height of the housing crisis and adjusting down payment requirements to mitigate risk factors like low credit scores.  He stressed the need to find the right balance of credit controls to offset risk.

Warnings abounded in regards to the restrictive influence of the fear of risk and subsequent attempts to reign it in. He paints the road to homeownership as wrought with challenges and says, “there may be families with good credit willing to put down substantial down payments that are being frozen out of the market because the risks of making any mistake are too great – and the rules of the road are unclear – and often contradictory.”  He warned of unrealistic requirements allowing only people with perfect credit to benefit from FHA’s programs, which would limit options for FHA’s actual target population.

The crux of Stevens’ statement was the need to clear up uncertainty in our real estate finance system. He added, “that includes not just FHA, but also examining the future of the entire housing finance system.”

Read the complete testimony here:

http://mba.informz.net/z/cjUucD9taT0yMjYzNTQ3JnA9MSZ1PTAmbGk9MTE0NTczNzQ/index.html

FHA Insurance Fund May Need Bailout

Presidential Budget Projects Insurance Fund May Need Treasury Support

from the News for the Week of 4.11.2013 NRMLA Newsletter

President Obama’s fiscal 2014 budget, as calculated by the Office of Management and Budget, projects an infusion of $943 million may be required for the MMI Fund Capital Reserve account for the new fiscal year beginning October 2, 2013 to cover projected 30-year losses.  Budget details show positive cash flow of about $4.3 billion for the forward mortgage portion of the fund, but $5.2 billion negative cash flow for reverse mortgage loans.

Since at the end of a loan (or “Maturation Event”) the borrower is only responsible for the appraised value of the home or sales price, the insurance fund covers any remaining balances. The Capital Reserve fund is a projection of the amount of money that will be needed to cover these expenses to FHA.

By statute, the MMI must operate net neutral on an annual basis. It is not supposed to depend on what is commonly called an appropriation, but which in the current verbal war zone are being referred to more frequently as “costs to taxpayers.”

This is just a proposed budget that still needs to be negotiated and passed by Congress. Though no federal budget has made its way out of Congress in the past few years, there seems to be more inertia to pass one this year. With recent years’ books of HECM business looking much better due to increases in insurance premiums and the creation of the HECM Saver, and future effects expected from the recent moratorium on the fixed rate HECM Standard, and, more significantly, increased home values, it is possible that over the time the budget is negotiated, the HECM picture will turn rosier.

At the same time, HUD is looking for the legislative authority to make additional alterations in the HECM program, so that it can make its own adjustments via Mortgagee Letter when a projection like this occurs. In its 2014 Budget Report, “Housing and Communities Built to Last,”  the narrative specifically pinpoints such changes as “instituting a required financial assessment and establishing mandatory escrow amounts.”

New York Regional NRMLA Conference Offers Useful Information – Part THREE – The Technical Default Process

Day Two of the NRMLA conference provided a useful session by Lorraine Geraci on the art of communication with seniors, with a discussion on the physical aspects of aging and a caution to avoid stereotyping older people.

The second workshop of the day gave a detailed look at technical default presented by representatives of HUD, RMS reverse mortgage servicers, and CredAbility reverse mortgage counseling agency.

Taxes and insurance payments made by reverse mortgage borrowers are tracked by the servicer through a third party.  If they are in arrears, the borrower is contacted within 30 days to discuss cure options:  the overdrawn amount can be paid back on a payment plan, the entire loan can be repaid, or the borrower can execute a deed-in-lieu of foreclosure.

HUD has a program to provide default counseling.  Upon review of the borrower’s budget, a deficit is usually found which the counselor attempts to help rectify.  Borrowers are referred to agencies which provide benefits and are encouraged to apply for available help such as SNAP (food stamps), free cell phones, and home sharing options.  The borrower can usually find $200 in savings in this way.

Many seniors pride themselves in their self sufficiency and are reluctant to participate in public assistance until long after the point at which they qualified.  It often takes three or more sessions with a counselor to achieve maximum improvement.  If money cannot be found through savings in the budget, counselors then discuss asking children or grandchildren for help in meeting budget deficits or in moving to alternative housing.

Loan originators are encouraged to provide information at the time of the initial application about tax reductions, etc, that may be available to the senior borrower.

Of the approximately 1400 default counseling sessions done last year, half were able to successfully get into a repayment plan.

Case Study:

A pilot program in the Philadelphia area has been instituted to help guard against the danger of HECM foreclosure. They began with date they had:  borrowers whose loans were already “due and payable”.  Contact was attempted, first with a telephone call, then a letter, and finally a visit to the property.  A counselor assists with enrollment in benefits programs and all efforts are made to keep the borrower in their home.

The help of HECM servicers was enlisted to obtain data on defaulted borrowers not yet due and payable.  These seniors are enrolled in benefit programs, new less-expensive homeowners’ insurance is put in place, live-in family members are asked to commit money to pay a part of expenses, TV services are bundled into more economical packages.  Perhaps most importantly, the repayment plans can be extended from one to two years, offering flexibility to meet goals more successfully.

Mark Helm from RMS servicing said that 6.7% of their HECM portfolio is currently in tax and insurance default.  75% of these borrowers began with a “constructive default”: they had been in arrears on their taxes and had let insurance lapse before the beginning of the loan.  The majority are insurance defaults.  34% of borrowers in default are on a payment plan now, and if they fail to keep up repayments for 120 days, they are given a second chance.  Of the borrowers on a payment plan, 77% succeed in bringing their account up-to-date.

Of all the defaulted borrowers that are contacted, a number are non-responsive to letters and calls, but an inspection visit can often lead a borrower to begin repayment.  Sometimes an inspection may find the property vacant, in which case a short sale is attempted before foreclosure.  Multiple extensions may be granted.  The usual time frame from “due and payable” to foreclosure is 6 months, with 90-day extensions granted.

The recent rise in home values may offer a chance for borrowers to do a HECM-to-HECM refinance to boost loan proceeds.  Although national home values are reported to be up 10%, HECM REO values are only up 3% due to maintenance issues, making this potential option less viable for some.

 

 

New York Regional NRMLA Conference Offers Useful Information – Part TWO – Industry/HUD/FHA Updates

NRMLA President Peter Bell offered welcoming remarks at the General Session Tuesday March 19, 2013.   Guest speakers remarked that 8000 Americans turn 65 every day, and eleven million retirees will not be able to afford household expenses.  Again it was stressed how important a reverse mortgage can be in a wealth management portfolio.  Americans have 50 – 66% of their assets tied up in home equity, while only 2% of those eligible have taken advantage of the HECM product.

Director of HUD Single Family Program Development Karen Hill spoke about FHA policy.  She mentioned the predicted effects of the current sequestration: Staff impacts will include furloughs, a hiring freeze, and limited travel and training.  There will likely be delays in mortgage insurance applications, claims and answers to inquiries.  Counseling grants could also be impacted.

The mission of the FHA is to provide access to credit for under-served borrowers.  They must preserve the health of the MMI fund and manage/mitigate loss.  Steps taken this year were to raise the MMP in forward loans and to consolidate the fixed HECM products, eliminating the Fixed Standard on April 1 of this year.  Ms. Hill predicted that slightly fewer HECMs would be endorsed this year.

Currently, she reported, 73% of HECMs are fixed rate while only 23% are adjustable rate products.  Issues that will be addressed this year are the cap on HECM endorsements, the non-borrowing spouse scenario, and the funding and availability of HECM counseling.  Policy changes being considered may set limits on loan draws, mandate escrows for taxes and insurance, and implement a financial assessment for borrowers.  Policy will be published August 1st for implementation in October.

John Olmstead from the HUD Office of Housing Counseling remarked on their intentions to improve monitoring, communications and metrics for reporting the data collected by reverse mortgage counselors.  There are currently 2400 approved counseling agencies, 129 of which are approved for HECM counseling.  There are 629 active, approved HECM counselors today.

Recent guidance which has been promulgated to reverse mortgage providers includes warning against steering, loan officer participation in counseling, and cases where a loan officer has provided answers to possible counseling quiz answers.

HUD staff reported that $895 million has been disbursed from the insurance fund for 8591 claims processed.  61% of claims resulted from foreclosure and deed-in-lieu, 23 from assignments of mortgage, and a further 9% from mortgagors’ sale.

The Conference then moved to a panel discussion on the state of the reverse mortgage industry.  The goal of empowering the FHA with authority over the HECM product was discussed.  Broadening the marketplace, however, was the theme that everyone agreed is top priority.  Communication with the general public is key.  There have been fewer HECM loans written in the recent past, but the product remains a valuable one.  It is possible that sales strategies changed when the fixed rate product came to the market in 2009 and they need to be changed again to illustrate to seniors the advantages of a reverse mortgage.

The mission of the HECM program is to facilitate aging in place, and many factors in the current market favor its success.  Aging Baby Boomers, appreciation of home values, and the money being spent on TV advertising all bode well for the future of the HECM program.

In NRMLA’s future, we see more professional education and more involvement of state legislators/regulators.

Federal Legislation Affects Reverse Mortgages

Two issues exist that affect reverse mortgages:

 

The first is the current budget sequester.  With federal funding cut to HUD grants that provide reverse mortgage counseling,

“From HUD’s perspective, the March 1 sequestration would also have even broader harmful effects on middle class families, on communities, and on the economy across the nation. Specifically: Sequestration would result in 75,000 fewer households receiving foreclosure prevention, pre-purchase, rental or other counseling though HUD housing counseling grants,”  said  Department of Housing and Urban Development Secretary Shaun Donovan.

 

The second is the current cap set by Congress on the total number of HECM reverse mortgages that can be insured by the FHA.  The cap has been raised from 2,500 loans in 1990 to 25,000 loans by the end of 1995., with subsequent raises of the cap leading to its current level, set in 2006 at 275,000.

“A major issue faced by the reverse mortgage industry is that, while the HECM program was made permanent back in 1998, there has been a statutory limit on the number of loans FHA is authorized to insure,” NRMLA President Peter Bell said in testimony presented to the Senate Banking Committee. “Although the cap has been routinely raised or suspended by Congress in a series of consecutive appropriations measures and continuing resolutions, the existence of the cap deters some industry participants from making the commitment required to fully embrace reverse mortgage lending, thus keeping competition in the market at a minimal level.”

“NRMLA urges Congress to support the continued availability of Home Equity Conversion Mortgages by permanently removing the cap on the number of HECMs that FHA may insure to minimize any possible disruption in the availability of this importance personal financial management tool,” Bell said.

Date Set For Elimination OF HECM Fixed Standard

The FHA has finally set the date for the discontinuation of the Fixed Standard HECM (Home Equity Conversion Mortgage) reverse mortgage.

Per MORTGAGEE LETTER 2013-1 from HUD, all fixed interest rate case numbers assigned on or after April 1, 2013 can be SAVER products but no longer Standard HECMs.

Read the Mortgagee letter here:

http://portal.hud.gov/hudportal/documents/huddoc?id=13-01ml.pdf

All fixed interest rate mortgages that were assigned a FHA case number on or before March 31, 2013, may be processed as either a HECM Standard or HECM Saver as the initial MIP; but any fixed interest rate HECM Standard mortgage must close on or before July 1, 2013.

There has been much discussion in online reverse mortgage forums as to the value of this change.  Some applaud the move, while others question whether it will make a difference.  One motivation for the change was the depleted state of the FHA insurance reserves in a declining housing market.  But will depriving senior borrowers of one avenue for reverse mortgage financing hurt them?