Re­verse Mort­gage Pro­gram Shouldn’t Be Fixed on Backs of Se­niors: FHA Chief

National Mortgage News - - Origination - By Hannah Lang NMN

Fed­eral Hous­ing Ad­min­is­tra­tion chief Brian Mont­gomery said the agency is try­ing to de­ter­mine the di­rect cause of losses to its re­verse mort­gage pro­gram, while in­di­cat­ing the FHA op­poses any changes to the pro­gram that could hurt the el­derly.

Though Brian Mont­gomery has only been head of the FHA since May, the agency is al­ready in “fix-it” mode, he said. High up on his agenda are re­form­ing the re­verse mort­gage pro­gram and up­dat­ing the agency’s 1960s-era com­puter op­er­at­ing sys­tem.

Mont­gomery pre­vi­ously served as FHA com­mis­sioner from 2005 to 2009, mak­ing this his se­cond shot at fix­ing some of the prob­lems that ex­isted at the agency when he left nine years ago, he told re­porters re­cently.

His nom­i­na­tion came shortly be­fore the FHA re­leased its an­nual re­port to Congress in 2017, which re­vealed that the agency was hit hard with losses in its re­verse mort­gage pro­gram. Those losses drove the cap­i­tal re­serve ra­tio down to 2.09% from 2.35% a year ear­lier. The FHA is re­quired by law to main­tain a 2% cap­i­tal re­serve buf­fer to cover pro­jected losses.

The drop raised ques­tions about whether the agency would fol­low through with pre­mium cuts that the Obama ad­min­is­tra­tion pro­posed and Pres­i­dent Trump had sus­pended shortly after he took of­fice. It also prompted calls to re­move the FHA’s Home Eq­uity Con­ver­sion Mort­gage pro­gram from the agency’s Mu­tual Mort­gage Insurance Fund.

Delv­ing into these press­ing is­sues has made for “a busy 30 days,” Mont­gomery said.

The home eq­uity con­ver­sion pro­gram drove a 26-ba­sis-point drop in the cap­i­tal re­serve ra­tio, spark­ing con­cerns not only about the agency’s fi­nances, but also about se­nior cit­i­zens de­fault­ing on loans.

This added to the de­bate on whether the re­verse mort­gage pro­gram should be sep­a­rated from the FHA’s tra­di­tional sin­gle-fam­ily pro­gram and placed in a sep­a­rate fund. De­part­ment of Hous­ing and Ur­ban De­vel­op­ment Sec­re­tary Ben Car­son agreed in Oc­to­ber that sep­a­rat­ing the two pro­grams would be a “wor­thy pur­suit.”

The con­ver­sion pro­gram has had a “pro­found im­pact” on the insurance fund in the last decade, said Mont­gomery, but be­fore any de­ci­sions about the pro­gram’s fu­ture are made, the FHA has to un­der­stand why it had to dip into the fund.

“If you look at it at the 30,000foot level, in­ter­est rates are still rel­a­tively low, house prices have re­turned in most ar­eas, yet here we are hem­or­rhag­ing money out of that port­fo­lio,” Mont­gomery said. “It’s just one of the things that we’re look­ing at, and why is that?

The FHA also re­mains con­cerned about the im­pact any changes to the re­verse mort­gage pro­gram would have on se­nior cit­i­zens.

“There are some pro­grams, but not enough, and this pro­gram al­lows se­niors to age in place—which they all tell you they want to do, and cer­tainly my mom has told me that—and I al­ways say the best govern­ment pro­gram, it’s as­sis­tance you pay for your­self,” Mont­gomery said.

Mont­gomery would also be open to wel­com­ing more pro­pri­etary products into the re­verse mort­gage market.

“I don’t think it was ever writ­ten or en­vi­sioned that FHA should be 100% of the re­verse mort­gage market, and I think folks out of that in­dus­try would like to see more pro­pri­etary products ex­pand,” Mont­gomery said.

When Mont­gomery first be­came head of the FHA in 2005, he said his goal was to bring the agency into the late 1990s. Now, the goal is to bring it up to the mid-2000s, he said.

“Back then, I think it was a punch­line when you talked about the FHA sys­tems, but it’s no laugh­ing mat­ter this time,” he said.

The FHA re­lies on a COBOL (com­mon busi­ness-ori­ented lan­guage) com­puter op­er­at­ing sys­tem that was in­vented in 1959, which is main­frame-based. In­creas­ingly, more govern­ment agen­cies are mov­ing to a cloud-based sys­tem, which of­fers more se­cu­rity and al­lows a sin­gle op­er­at­ing sys­tem to move seam­lessly be­tween com­put­ers.

If the op­er­at­ing sys­tem were to fail, FHA sin­gle-fam­ily and mul­ti­fam­ily loans would be un­avail­able un­til a re­place­ment sys­tem was con­fig­ured.

In 2017, the FHA had a to­tal of 73 out­ages, some last­ing as long as five days, ac­cord­ing to the agency. HUD has been lob­by­ing for years to re­ceive fund­ing to up­date its com­puter sys­tems, but Congress has failed to pro­vide it.

“FHA is look­ing for loose change un­der the sofa cush­ion and that man­i­fests it­self in a lot of ways that I think work against us,” Mont­gomery said.

How­ever, the agency is look­ing at bud­get­sav­ing so­lu­tions, such as bor­row­ing some of the tech­nol­ogy in­fra­struc­ture that the govern­ment-spon­sored en­ter­prises have built, or col­lab­o­rat­ing with the De­part­ment of Agri­cul­ture and De­part­ment of Vet­eran Af­fairs on shared plat­forms.

One of the big­gest ques­tions in the hous­ing in­dus­try upon Mont­gomery’s nom­i­na­tion was whether he would re­vive a pro­posal un­der the Obama ad­min­is­tra­tion to cut pre­mi­ums by 25 ba­sis points.

Some groups have ar­gued in fa­vor of the pre­mium cuts, say­ing that they would re­store an­nual pre­mium lev­els to pre­cri­sis lev­els.

The Com­mu­nity Home Lenders As­so­ci­a­tion noted in a May 30 let­ter to Mont­gomery that the Jan­uary 2015 an­nual pre­mium cut from 1.35% to 0.85% was “highly suc­cess­ful,” which HUD agreed with in its 2015 an­nual re­port.

Brian Mont­gomery

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