By Phil Gardner
A bill sponsored by Congressman Denny Heck (D-WA) to enact commonsense reforms to fix the federal reverse mortgage program will be considered by the U.S. House Wednesday. The bill is co-sponsored by Congressman Mike Fitzpatrick (R-PA).
Only a handful of bills sponsored by a first-term member of the minority party reach the floor of the U.S. House each session.
H.R. 2167, the Reverse Mortgage Stabilization Act, was introduced in response to requests from the Federal Housing Administration. The bill gives FHA authority to quickly make changes to the Home Equity Conversion Mortgage program necessary to stabilize it.
Reverse mortgages provide an efficient way for cash-poor seniors to tap the equity in their homes to supplement cash flow or to meet unexpected needs, and the FHA’s insurance of these loans makes them much safer and more widely available to seniors.
Unfortunately, the housing downturn exacerbated problems in the program, and reverse mortgages now account for less than 7% of FHA’s portfolio but more than 16% of expected losses. In contrast to the standard “forward” mortgage program, FHA lacks broad power to respond quickly to problems in the reverse mortgage program, so stemming the losses would require a multi-year rulemaking.
H.R. 2167 instead gives FHA the power to make rule changes by mortgagee letter as long as those changes improve the fiscal situation of the portfolio. FHA will use this power to require financial assessments of borrowers’ budgets, to set up escrow accounts to ensure payment of taxes and insurance, and to limit the amount borrowers can take out as a lump sum up front.
These changes will improve the product for seniors and return the reverse mortgage program to profitability for the taxpayer.