Recently, the U.S. Department of Housing and Urban Development (HUD) asserted that under its current authority and today’s real estate market conditions, the Home Equity Conversion Mortgage (HECM) program could cease to exist before the end of 2013.

Recent declines in home prices and increases in the numbers of seniors failing to pay their property taxes and homeowners insurance have caused the HECM program to incur significant losses in the last several years. Because HUD insures these loans for lenders, the increasing cost to taxpayers could force HUD to consider scrapping the popular program. One of the challenges HUD has faced in managing the HECM program has been its inability to move swiftly in making programmatic changes to protect the Mutual Mortgage Insurance Fund. Under current procedures, it can take years for changes to go into effect.

Senate Bill #469, aka the HECM Stabilization Act of 2013, would allow the FHA to implement some long-overdue program reforms. Proposed changes include:

  1. Reducing the reverse mortgage lump sum payout to keep loans above water;
  2. Making sure that borrowers can afford an HECM; and
  3. Establishing escrow accounts to prevent foreclosures from tax and property insurance delinquencies.

“HUD has made some changes to help keep the program afloat, but their hands are tied,” said the bill’s creator, U. S. Senator Robert Menendez (D-NJ). “I urge my colleagues to pass my bill immediately so HUD can make additional, necessary reforms to keep the program alive, while also reducing taxpayer liabilities by billions of dollars over the coming decade.”

During a hearing last week before the Senate Banking Committee, senators said they were willing to consider granting FHA the authority to make changes to its reverse mortgage program. The introduction of the bill solidifies that commitment.

Congressional authority would enable FHA to expedite its reform process, rather than having to go through rule making to change program regulations.

The National Reverse Mortgage Lenders Association (NRMLA) expressed its support of Menendez’s bill.