The U.S. Senate approved Congressman Denny Heck’s first bill last night by a unanimous, bipartisan voice vote. The bill, cosponsored by Congressman Mike Fitzpatrick (R-PA), gives the Federal Housing Administration authority to quickly make common sense reforms to the federal reverse mortgage program necessary to stabilize it.
The U.S. House passed the bill in June. It now heads to President Obama’s desk to be signed into law.
Out of more than 4,200 bills that have been introduced this Congress, only twenty-two have become public law. Only three of those twenty-two laws were sponsored by members of the minority party. This bill will be the first by a freshman member of the minority party.
“As I said in June, it’s still possible to get things done in Washington, D.C. if you’re willing to reach across the aisle and focus on the substance of issues,” Congressman Heck said.
“Today’s winners are senior citizens and bipartisanship. Thanks to bipartisan efforts in both chambers, the FHA can now act quickly to make necessary and common sense reforms to the federal reverse mortgage program. Hundreds of thousands of seniors currently utilize federal reverse home mortgages, and the FHA will now be able to continue this useful program into the future,” the Congressman continued.
“This important legislation will give the Department of Housing and Urban Development (HUD) the authority to make some very appropriate reforms to the FHA’s reverse mortgage, or HECM, program. Those reforms are required by the law to improve the safety and soundness of the program. Improving the fiscal health of the HECM program will ensure that reverse mortgages are available to those seniors who can benefit from these products,” Congressman Fitzpatrick said.
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 targeted changes to the Home Equity Conversion Mortgage program that HUD has stated are needed to stabilize it.
In the absence of this ability to make rapid changes, FHA’s only option to stem the losses would have been to dramatically scale back the program across the board. Without this bill, FHA Commissioner Carol Galante has said the HECM program would need to undergo “really radical changes” which would make the program “much less useful for far fewer people.”
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.