Reverse Mortgages Regulations
Obama’s take on reverse mortgage regulations attracted both support and opposition from Congress and the public in general.
Obama Administration’s Mortgage Regulations
- In his final term, Obama addressed the State of America’s housing crisis while mapping out a proposed solution that would help unstable homeowners to refinance their homes further. The reverse mortgage plan was estimated to have a $5 billion to $10 billion price tag depending on the number of program participants. According to Obama, the reverse mortgage was meant “to help those who have acted responsibly take advantage of low-interest rates. It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom,” he said in a speech in Falls Church, Virginia.
- In his State of the Union address back in 2012, the then President Obama introduced a Blueprint for an America Built to Last. The reverse mortgage policy was meant to cushion responsible borrowers and support a housing market recovery. According to Obama, “responsible homeowners should not have to wait for the market to hit a crisis to get relief when there are measures at hand that can make a meaningful difference, including allowing these homeowners to save thousands of dollars by refinancing at today’s low-interest rates.”
- Faced with several options to limit the foreclosure damage, the Obama administration settled for the Home Affordable Modification Program (HAMP) policy, which was entirely voluntary. Under HAMP, mortgage institutions were provided with financial inducements to modify loans for high-risk borrowers. Still, companies alone, not the Obama administration had the mandate to decide on whom to aid and whom to cast off.
- The reverse mortgage policy was not received positively by all mostly because before Obama’s election, Congress had explicitly authorized the executive branch through $700 billion bank bailout to prevent avoidable closures. Obama’s administration had to live with the consequences of the HAMP policies, which was seen as a contrast. “It’s a terrible irony,” said Damon Silvers, policy director and special counsel for the AFL-CIO, who served as deputy chair of the Congressional Oversight Panel for TARP. “This man who represents so much to people of color has presided over more wealth destruction of people of color than anyone in American history.”
- An article published by USA Today on December 23, 2019, argues that reverse mortgages allow homeowners to borrow against the equity in their homes. Reverse mortgages enable these homeowners to stay in place mortgage-free until they pass away. In such situations, heirs are given the option to pay off the loan, if they wish to keep the properties or sell them. However, the regulators at the Housing and Urban Development downplayed the usual pattern of low servicing after borrowers die, but acknowledged that individual cases had surpassed impacts on grieving families. “The reverse mortgaging issues can be traced to faulty loan servicing in terms of disbursements, interest calculations, and proper communication with both borrowers and their heirs," said Sarah Bolling Mancini, an attorney with the National Consumer Law Center.
Trump Administration’s Mortgage Regulations
Both the current administration officials and Congress have agreed and differed on some pending regulation within the reverse mortgage sector.
- In 2019, President Trump announced proposed changes to the Department of Housing’s reverse mortgage program, the HECM (Home Equity Conversion Mortgage). Senior reverse mortgage borrowers who were also originators of reverse mortgage loans were noticed of the impending changes and how they would be impacted. There was a recommendation that Congress amend HECM’s loan limit structure. The amendment was meant to “reflect variation in local housing markets and regional economies across the U.S. instead of the current national loan limit set to the level of high-cost markets in the forward program.”
- The impacts of the changes made to the reverse mortgage, which were effected in October 2019 by the Trump administration, are still significant almost a year down the line. Trump Administration officials have recently contended that the changes instituted are currently having their intended effects on the HECM program are now having their intended impact on the health of the HECM program.
- “The HECM portfolio shows dramatic improvement due to program changes, along with the health of the economy and housing market,” said FHA Commissioner Montgomery in November 2019. The Trump Administration is still insistent on further reforms to the HECM program, including administrative proposals that would not require approval by Congress. Further, the proposed changes include; the development of new HECM servicing standards, in addition to the elimination of HECM-to-HECM refinancing.
- The legislative and provisional proposals provided in the Department of HUD (Housing and Urban Development)’s congressional justifications for Trump Administration’s recent reverse mortgage proposals may give more insight into areas that the administration may want to effect other change in HECM.
- “Currently, housing counseling is required for all HECMs except that the National Housing Act provides that Housing Counseling can be waived in a refinance transaction if less than five years have passed since the closing date of the current HECM and the application date of the new refinanced HECM loan,” the document reads. “Counseling for HECMs provides seniors the tools to understand a complex financial transaction that affects them and their heirs.”
- Since both the Trump Administration and Congress have reached a funding agreement applicable to fiscal years 2020 and 2021, forward momentum on these proposals may not be applied mainly because of tumult in Washington with the ongoing election preparations. However, they remain possible targets for program change in the future, with the help of legislative and administrative remedies.
- With the ongoing COVID-19 pandemic, the economy is already struggling as tens of millions of Americans continue to file unemployment claims in recent months, and economists were forecasting a crippling recession in the near future. In April 2020, the Federal Housing Administration, an agency operating under HUD that insures mortgages for low-and moderate-income borrowers wrote to mortgage institutions asking them to delay due dates for reverse mortgage claims.
- “For American families impacted by the Covid-19 virus and unable to pay their FHA-insured mortgage, imminently losing their homes is now one less fear they should have,” Assistant Secretary for Housing and Federal Housing Commissioner Brian Montgomery said.
- The response given by policymakers during the pandemic has put servicers, and lending institutions in a difficult position, as homeowners had to suspend payments during the crisis. Even when a borrower skips a payment, servicing companies are under obligation to advance payments to investors within security markets.
The research team had to rely on sources older than two years when researching on the Obama Administration’s take on reverse mortgage regulations. By widening our scope to older sources, we have managed to get the context and the origin of the reverse mortgage regulations. Further, older sources provided context on how these regulations came to be, and how they were perceived by both the policymakers and the public.