Washington – In a ceremony at the White House Friday afternoon, President Barack Obama signed into law Congressman Denny Heck’s first bill, the Reverse Mortgage Stabilization Act of 2013. Secretary of Housing and Urban Development Shaun Donovan and Federal Housing Authority Commissioner Carol Galante were present for the bill signing, as was Congressman Heck and Congressman Mike Fitzpatrick (R-PA), the bill’s co-sponsor.
The Reverse Mortgage Stabilization Act of 2013 passed the U.S. House of Representatives in June and the U.S. Senate in July by unanimous, bipartisan voice votes. The act gives the Federal Housing Administration authority to quickly make common sense reforms to the federal reverse mortgage program necessary to stabilize it.
Only 31 bills have been sent to President Obama to be signed into law during the 113thCongress, which began in January. Getting a substantive bill signed into law is an extreme rarity for a freshman in the minority. Before Friday, it had been nine years since such a bill that modified federal programs was signed into law.
“I want to thank President Obama for signing this bill into law today, and I also want to thank my colleague from Pennsylvania, Congressman Mike Fitzpatrick, for his work on this bill. 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. 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.
Background
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.