Proposed changes to guidelines for federally insured reverse mortgages are expected to stabilize the program while protecting consumers, according to congressional testimony.
The testimony is being given at a hearing Tuesday on home-equity conversion mortgages held by the Senate Committee on Bank Housing & Urban Affairs.
Witnesses at the hearing, Long Term Sustainability for Reverse Mortgages: HECM’s Impact on the Mutual Mortgage Insurance Fund, are talking about proposed changes to the HECM program that would improve the financial stability of the program while increasing protections for consumers.
Legislation to authorize the Department of Housing and Urban Development to make proposed changes to the HECM program was introduced by Sen. Robert Menendez (D-N.J.), while similar legislation was approved last week by the House.
Representatives from the AARP, the National Consumer Law Center and National Council on Aging are among the scheduled witnesses for today’s hearing.
Also on the docket is Peter Bell, president and chief executive officer of the National Reverse Mortgage Lenders Association.
In prepared testimony, Bell said three primary changes that the Federal Housing Administration — which insures HECMs — wants to immediately make are the financial assessment of borrowers, principal limit utilization restrictions and tax and insurance set-asides.
The changes, according to Bell, “would not only protect the FHA insurance fund, but simultaneously provide yet another level of safeguards for consumers.”
Bell acknowledged that some needy consumers might be precluded from obtaining HECMs and be forced to move from their homes based on the additional proposed provisions.
But “these changes are intended to eliminate those prospective borrowers who are less likely to have a successful experience with their HECM loan.”
Bell sees the proposed changes, along with constant program revisions and enhanced counseling, as enabling HUD to effectively manage the HECM program and keep it as a useful tool for elderly homeowners.
The NRMLA chief noted that while HUD can achieve the changes through the full regulatory development process, it typically takes 18 months or more to complete.
“The most productive action Congress can take is to provide HUD with the administrative authority to make changes on a more expeditious basis, so that it has the ability to respond in ‘real time’ as it observes various trends in the economy and patterns of behavior among HECM borrowers and lenders,” he said.
Bell noted that he would expect that HUD would be responsible if “given the authority to fine-tune the HECM program as economic conditions and program performance require it to do so.”
But other groups would prefer that HUD use the slower regulatory process.
Bell called implementation of the proposed changes urgent given that only 42 percent of retirees have pensions and 60 percent of U.S. workers report that their total household savings and investments, excluding the value of their home and any defined benefit pension, is less than $25,000.
“A HECM loan is not a complete solution to filling this retirement financial gap, but it is a valuable tool that has been utilized by nearly 800,000 older Americans to provide a degree of financial stability that helps them maintain their homes and age in place,” Bell testified.
Testimony from National Council on Aging Senior Director Ramsey Alwin indicated that the proposed changes could stabilize the HECM program.
But Alwin cautioned that vulnerable older adults be given “access to appropriate resources to help them age in place with dignity, coupled with strong protections against financial abuse and exploitation.”
