With the Federal Housing Administration’s (FHA) capital reserve ratio beneath its Congressionally mandated level thanks to thousands of bad loans made during the housing bubble, the agency came under fire on Thursday during the House Financial Services Committee Hearing on the FHA single-family insurance fund. One program that escaped the heat was the Home Equity Conversion Mortgage (HECM) program.
In 2011 and 2012, the FHA implemented several changes to the program, taking steps to ensuring it would remain “viable financing option for seniors,” said Henry V. Cunningham, Jr., the president of Cunningham and Company, who represented the Mortgage Bankers Association (MBA).
These changes include the introduction of the HECM Saver, the adjustment of principal limit factors used to determine the maximum claim amount for reverse mortgage loans to make sure the HECM Standard could be self-supporting, and underwriting guidance to address tax and insurance default.
“MBA appreciates that FHA continues to work as a partner with lenders to strengthen the HECM program and to ensure that borrowers are able to meet their financial obligations related to the mortgage,” said Cunningham in his written testimony.
The Department of Housing and Urban Development’s (HUD) secretary, Shaun Donovan, also mentioned the “significant changes” that were made to the program.
“These policy measures have significantly strengthened the HECM program so that it can continue to provide important financial options for seniors without posing unnecessary risks to the MMI (mutual mortgage insurance) Fund,” he said in his testimony.
The FY 2011 Actuarial Report suggests that the MMI Fund will return to its Congressionally mandated capital ratio of at least 2% by 2014, when it is projected to be at 2.17%. This, however, depends strongly on the future performance of the housing market, as Donovan said in his testimony.
On the other hand, the FY 2011 HECM book is actuarially sound, as are future books of business, according to the report, and as Cunningham said, HECMs are “less impacted by near-term economic conditions than the forward mortgages book of business.”
Although the HECM program received a $535 million transfer from capital accounts in 2011, the actuarial report points to the program being able to pay back those funds by 2015, thanks to the changes the FHA implemented, the MBA representative pointed out.
“MBA strongly supports the HECM program and applauds FHA for proactively taking steps to protect a program that is becoming an increasingly important financial option to American seniors,” Cunningham said.
Written by Alyssa Gerace
