House Financial Services Committee Meets to Discuss Improvements to FHA HECM ProgramThe U.S. House of Representatives Financial Services Subcommittee on Housing, Community Development, and Insurance convened a hearing on September 25, 2019, to discuss the federal Home Equity Conversion Mortgage (HECM) program, including recently proposed HECM legislation. The subcommittee hearing, titled “Protecting Seniors: A Review of the FHA’s Home Equity Conversion Mortgage Program,” included testimony from four witnesses. The witnesses were comprised of representatives from the National Consumer Law Center, the Urban Institute, the Government Accountability Office (GAO), and the National Reverse Mortgage Lenders Association (NRMLA). The hearing covered a range of topics, including discussion of proposed legislation, HECM servicing issues regarding foreclosures, and separating the HECM program from the Mutual Mortgage Insurance Fund (MMIF).

The first of two pieces of legislation discussed at the hearing included proposed legislation co-sponsored by Rep. Maxine Waters (D-CA), chairwoman of the U.S. House Committee on Financial Services, and Rep. Denny Heck (D-WA). The legislation focuses on adding borrower safeguards to the HECM program, including further protections for non-borrowing spouses. The proposed legislation also would require the Department of Housing and Urban Development (HUD) to submit an annual report to Congress identifying the amount of and reasons behind HECM foreclosures caused by defaults for failure to pay taxes and insurance premiums. The second piece of legislation, sponsored by Rep. Lacy Clay (D-MO), would conform the maximum loan limit for FHA-insured HECMs to match the area maximum loan limits for FHA-insured forward mortgages. In prepared statements, Peter Bell, president and CEO of NRMLA, testified that tying the maximum area loan limit for forward mortgages to HECMs would prevent some homeowners who have built up equity in their homes from accessing that accumulated equity.

The discussion on HECM servicing issues focused on changes to servicing practices and regulations to reduce certain foreclosure actions. Suggested changes consisted of servicing practice changes to better address defaults because of borrowers falling behind on paying property charges. The witness representing the GAO outlined that additional data collection from FHA on the reasons for foreclosure initiation could provide additional insight on how to further prevent foreclosures. The discussion of alterations to HECM servicing practices was especially timely because earlier in the week FHA announced changes to the Mortgagee Optional Election (MOE), including providing additional protections to non-borrowing spouses.

During the hearing, Rep. Joyce Beatty (D-OH) raised the topic of the financial health of the MMIF. As reported in the most recent report to Congress, the economic condition of the overall MMIF is sound, with a net worth of $34.86 billion. However, the HECM portfolio was determined to have a net worth of negative $13.6 billion. In a brief exchange, the representative from Urban Institute and Peter Bell of NRMLA both agreed that it would be appropriate to separate the HECM portfolio into its own insurance fund. According to the witnesses, separating the forward and reverse mortgage portfolios would allow each fund to be operated in a manner best suited to the type of mortgage portfolio.

Importantly, while the attendees at the hearing offered differing viewpoints on the various topics, there was wide-spread recognition by the hearing attendees of the importance of the HECM program and the value it provides to senior consumers. Additionally, various subcommittee members and witnesses recognized that important protections had been introduced into the HECM program in the wake of the 2008 recession. Perhaps because of the recognition of the improvements implemented to the HECM program, all of the testifying witnesses believed that additional improvements to the HECM program could reap benefits for borrowers. Based on the aging U.S. population, the HECM program will only continue to grow in importance for FHA.  Industry members should look to continue to grow their business with the increasing HECM program eligible population while staying aware of new requirements introduced by Congress and FHA.

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Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Austin Holland Austin Holland

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to…

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to joining Bradley, Austin worked for the U.S. Department of Housing and Urban Development in the Office of Litigation, where he handled matters related to affordable housing, reverse mortgages, fair housing, bankruptcy, foreclosures, grant recaptures, rulemaking, religious discrimination, and the Appointments Clause of the U.S. Constitution.