A reverse mortgage lender may employ a former GOP senator as corporate pitchman, but there’s no love lost on Capitol Hill.
President Barack Obama’s fiscal 2014 Housing and Urban Development budget includes a warning about a nearly $1 billion bailout for the Federal Housing Administration from the Treasury.
HUD Secretary Shaun Donovan blamed that deficit squarely on issues with government-insured reverse mortgages, which HUD refers to as Home Equity Conversion Mortgages, or HECMs. That’s an acronym that Susan Collins, R-Maine, conceded she couldn’t really pronounce.
At a routine budget hearing April 11, Collins, the ranking member on the Appropriations Subcommittee on Transportation, Housing and Urban Development, highlighted her worries about risks from the mortgages, in which seniors take equity out of their homes to pay for living expenses.
“We see these ads on television and it sounds like it’s the best thing since sliced bread, and yet I’m hearing that there are a lot of problems,” Collins said.
The quip about TV ads was perhaps more amusing than Collins intended. Turn on a TV at any hour of the day or night and you might see a commercial featuring actor and former Sen. Fred Thompson, R-Tenn., promoting reverse mortgage offerings from American Advisors Group. Thompson has worked as a paid spokesman for the company since 2010.
Donovan said April 11 that the administration was proposing to overhaul the HECM program but needed legislative action outside the budget to do so.
“If you just took out the reverse-mortgage loans from the FHA, we would be in a positive $4 billion position,” Donovan said in response to a question from Subcommittee Chairwoman Patty Murray, D-Wash. “Frankly the program needs reforms and unfortunately we do not have the authority to implement those reforms without full notice and comment rule-making.”
Collins, who also serves as the top Republican on the Senate Aging Committee, noted that her concerns extended beyond the fiscal health of the program to seniors who may not understand terms and conditions associated with reverse mortgages, noting the comments of an engaged constituent.
“A retired mortgage banker in Maine has repeatedly contacted me to express her well-informed view that in many cases our seniors are getting into these reverse mortgages and they’re turning out to be a disaster for them,” she said. “I’m also concerned about the impact on seniors of the widespread or the wider-spread use of reverse mortgages.”
Collins pointed to a particular worry about situations with couples where one member is the sole mortgage-holder and that person dies, leaving the widow or widower in the predicament of having to pay back the mortgage upon the death of the spouse.
In response, Donovan noted that HUD’s position is that in many cases spouses should be “signed on the mortgage for the financial integrity of the program” — which is to say that both people should carry a joint mortgage to avoid the sudden shock to the system of having to pay back the lender. He added that work was being done by the administration to ease some of the burden by allowing “a sale through the estate or [ensuring] there are other ways to recover short of foreclosure.”
But to go further, he said, would require the sort of exhaustive rule-making that could take 18 months or so. Buried deep within HUD’s budget is a request for congressional action, and a HUD spokesman said April 12 that the department was exploring several specific policy changes aimed at making the reverse mortgage insurance program more stable, including imposing new limits on the amount of equity that can be drawn out of the home upfront, effectively reducing the amount of money actually loaned out.
In specific response to Collins’ line of questioning, Donovan conceded that the FHA could take additional steps to make sure prospective borrowers knew what they were getting themselves into.
“This is an issue that does need work and clarification. We are asking for legislative language that would clarify this in our budget,” Donovan said. “But we’ve also made sure that in the counseling that we require that this is a much more clear focus when seniors are making a decision about whether to take a reverse mortgage or not.”
Donovan added that more stringent oversight and better information had cut the default rate in half in recent years on the more recently originated loans. HUD says it may also push for “a statutory change to clarify the rights and responsibilities of the non-borrowing spouse on a HECM loan” in marriages where only one person is named on the mortgage.