[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FEDERAL HOUSING
ADMINISTRATION'S REVERSE MORTGAGE
PROGRAM FOR SENIORS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 9, 2012
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-123
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75-729 PDF WASHINGTON : 2012
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Insurance, Housing and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
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Page
Hearing held on:
May 9, 2012.................................................. 1
Appendix:
May 9, 2012.................................................. 31
WITNESSES
Wednesday, May 9, 2012
Bell, Peter H., President and Chief Executive Officer, National
Reverse Mortgage Lenders Association (NRMLA)................... 6
Coulter, Charles, Deputy Assistant Secretary for Single Family
Housing, U.S. Department of Housing and Urban Development...... 5
Fenton, Daniel, Senior Housing Director, Money Management
International, Inc. (MMI)...................................... 8
Lewis, Jeffrey M., Chairman and Chief Executive Officer,
Generation Mortgage............................................ 10
Sanders, Anthony B., Distinguished Professor of Real Estate
Finance, George Mason University, and Senior Scholar, Mercatus
Center at George Mason University.............................. 12
Shadab, Houman B., Associate Professor of Law, New York Law
School......................................................... 14
Stucki, Barbara, Ph.D., Vice President, Home Equity Initiatives,
National Council on Aging (NCOA)............................... 16
Trawinski, Lori A., Ph.D., Senior Strategic Policy Advisor, AARP
Public Policy Institute........................................ 17
APPENDIX
Prepared statements:
Bell, Peter H................................................ 32
Coulter, Charles............................................. 45
Fenton, Daniel............................................... 55
Lewis, Jeffrey M............................................. 63
Sanders, Anthony B........................................... 76
Shadab, Houman B............................................. 85
Stucki, Barbara.............................................. 92
Trawinski, Lori A............................................ 99
Additional Material Submitted for the Record
Biggert, Hon. Judy:
April 2012 study by the Center for Retirement Research at
Boston College entitled, ``How Important is Asset
Allocation to Financial Security in Retirement?''.......... 107
Letter to Congressman Gary Miller from Wendy Bucknum,
Governmental & Public Affairs Manager, Laguna Woods
Village, dated May 7, 2012................................. 135
Study entitled, ``Reversing the Conventional Wisdom: Using
Home Equity to Supplement Retirement Income'' by Barry H.
Sacks, J.D., Ph.D., and Stephen R. Sacks, Ph.D............. 137
OVERSIGHT OF THE FEDERAL HOUSING
ADMINISTRATION'S REVERSE
MORTGAGE PROGRAM FOR SENIORS
----------
Wednesday, May 9, 2012
U.S. House of Representatives,
Subcommittee on Insurance, Housing
and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2128, Rayburn House Office Building, Hon. Judy Biggert
[chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, Dold,
Stivers; Gutierrez, Sherman, and Capuano.
Chairwoman Biggert. This hearing of the Subcommittee on
Insurance, Housing and Community Opportunity will come to
order.
Good afternoon, everyone. I am glad to see all of the
witnesses here. We have quite a distinguished panel here.
And let me just say, without objection, all Members'
opening statements will be made a part of the record, and I am
going to recognize myself for an opening statement.
I would like to welcome our panel of witnesses today for
the hearing entitled, ``Oversight of the Federal Housing
Administration's Reverse Mortgage Program for Seniors.''
During the 112th Congress, this subcommittee has been
systematically reviewing the Federal Housing Administration, or
FHA, in today's mortgage financial, market. We also have
examined ways to reduce the government's role and increase
private sector participation in mortgage finance.
Today, we will continue our work with an examination of
FHA's Home Equity Conversion Mortgage Program, or HECM. This
program offers seniors a 100 percent government-backed reverse
mortgage product.
For some seniors, reverse mortgages are a great financial
tool that will allow them to convert the equity in their home
into cash for a variety of uses. That said, reverse mortgages
are not for everyone. That is why seniors are required to
secure housing counseling prior to obtaining a reverse
mortgage.
In recent years, more seniors, particularly baby boomers,
have used the program to turn the equity they have in their
home into income. The HECM program also has seen an increase in
delinquencies and claims which have consistently exceeded the
FHA's original projections.
Today, we will hear from witnesses about the strengths and
weaknesses of this government program as well as reverse
mortgage products, and we will address a number of questions
including: Is the private sector willing to offer seniors a
reverse mortgage product without a government guarantee? Are
the FHA's underwriting standards, premiums, and rates
sufficient to ensure the solvency and sustainability of the
HECM program for seniors and taxpayers alike? Finally, should
Congress or HUD make any statutory or regulatory changes to
this program?
As the saying goes, there is always room for improvement;
and I am eager to hear if there are recommendations that we can
act on to better serve those seeking financial security in
their golden years. I look forward to an informative
discussion, and I welcome our witnesses.
And, with that, I will turn things over to our ranking
member, Mr. Gutierrez.
Mr. Gutierrez. Thank you, Madam Chairwoman.
I am very pleased that we are here today to discuss the
Federal Housing Administration's Home Equity Conversion
Mortgage Program. Reverse mortgages can be a critical tool for
seniors to help pay off debt or simply ease the strains of
monthly expenses. That being said, seniors have long been a
population that is targeted by fraudsters, and strong consumer
protections are essential to the success of this product.
When I see famous celebrities on TV acting as spokespersons
for reverse mortgages, I can't help but wonder how many seniors
are misled into believing that this product is appropriate for
them when it may not be at all or it may create financial
problems instead of solving them. How many seniors who see
these commercials and like the celebrity spokesperson know
enough about reverse mortgages to be able to make an informed
decision about what is a very complex product?
This is one of the many reasons that I believe improving
the reverse mortgage counseling protocol was an important and
very positive development. Seniors are now required to
participate in a counseling session and obtain counseling
certificates before they can secure a reverse mortgage. HUD has
required that, in these sessions, the seniors' financial needs
and obligations are assessed and ultimate options are evaluated
to see if a reverse mortgage is right for them.
In addition, if the seniors are below 200 percent of the
Federal poverty level, the counselor will also conduct a review
to determine if they are eligible for any benefits that they
are not currently accessing to ease their financial strain.
It has been suggested that the consistency of reverse
mortgage counseling can be improved by requiring face-to-face
counseling. While I am concerned that this might not be
possible given the current number of counselors, I am looking
forward to discussing this issue further.
I am looking forward to hearing about the steps that HUD
has taken to reduce the risk to the program. This includes
foreclosure mitigation counseling and requiring that lenders
notify HUD of property tax and insurance default.
As baby boomers reach the age of eligibility for a reverse
mortgage, it is critical that the program has stronger consumer
protection and remains financially sound.
I thank you, Madam Chairwoman, and I yield back the balance
of my time.
Chairwoman Biggert. Thank you, Mr. Gutierrez.
Now, I will recognize Mr. Hurt, our vice chairman, for 1\1/
2\ minutes.
Mr. Hurt. Thank you.
I would like to add my welcome to the witnesses today as
you all help us understand this important issue a little
better.
I want to also thank the Chair for yielding and for holding
this important hearing today. I want to commend the chairwoman
for her continued commitment to conducting extensive oversight
of the programs within our jurisdiction.
My constituents in Virginia's Fifth District understand how
critical oversight is to effective stewardship of precious
taxpayer resources.
Today's oversight hearing focuses on the FHA's Home Equity
Conversion Mortgage Program, which backs loans to seniors
commonly known as reverse mortgages. Financial security during
one's retirement years is of critical importance to all
Americans, and we must encourage people to plan and save for
their retirement. For some seniors, reliance upon the equity in
one's home is a potentially viable option for ensuring
financial stability as they grow older. That said, we must be
mindful of the risks which taxpayers and seniors are exposed to
by the reverse mortgage program and the FHA's overall
portfolio.
This subcommittee has conducted substantial oversight of
FHA's financial stability over the last year-and-a-half,
finding that its outsized role in the mortgage market has
placed it on precarious footing. Similarly, the overwhelming
majority of reverse mortgages are guaranteed by FHA at present.
Given these trends, we must carefully consider the extent to
which the Federal Government should be involved in this market.
We must also ensure that the program is efficiently and
effectively administered so it is capable of dealing with
adverse challenges and conditions like declining home values
and longer life spans, without creating losses for the
taxpayers or for our seniors.
And I hope our witnesses can express their views about how
private capital can return to the reverse mortgage marketplace,
which will reduce taxpayers' exposure to that risk.
Again, I want to thank the chairwoman for holding this
hearing today, and I look forward to the witnesses. And I yield
back my time.
Chairwoman Biggert. The gentleman from Illinois, Mr. Dold,
is recognized for 2 minutes.
Mr. Dold. Thank you, Madam Chairwoman.
I want to thank you all for taking your time to be with us
today.
I am confident that both the Democrats and the Republicans
share fundamental objectives that relate to this hearing.
First, we need to create a legal and regulatory framework that
promotes financial security and financial independence for our
seniors. Second, our most vulnerable seniors should have
significant or sufficient resources to retire and age in a
dignified way with adequate living accommodations. Third, in
these very challenging fiscal circumstances, we need to reduce
government spending and diminish taxpayer risk wherever
possible without compromising our fundamental values. And,
finally, we need to promote the private sector's return to the
market as our primary mortgage financing vehicle.
As we consider strategies for achieving those common
fundamental objectives, we must recognize that we are faced
with certain challenging environmental realities. Our fiscal
environment includes multiple and ongoing trillion dollar
deficits with an unsustainable national debt. We have a
challenging economic and job creation environment, along with a
challenging housing market and mortgage finance market, and we
also have a rapidly aging population, with tens of millions of
baby boomers retiring over the next 15 years while 401(k) plans
have been significantly diminished and pension plans have
become increasingly unavailable.
Within that contextual framework, the ultimate question is,
how can the reverse mortgage help us achieve our fundamental
objectives while also accounting for the challenging
environmental realities that we are facing.
Essentially, reverse mortgages seem to be a largely private
sector solution that is uniquely situated to help seniors use
their own resources to establish and maintain financial
independence and security. And while I know many of us in
Congress and many taxpayers are deeply troubled by the GSE
bailouts, I don't think that this situation is a zero-sum
tradeoff between an FHA guarantee with some inevitable default
costs and eliminating the guarantee and having no costs.
If we prematurely eliminate the guarantee, I think we can
safely assume that many seniors who would have otherwise
remained financially independent would need to resort to
government assistance and significantly diminished living
standards.
So we have costs either way, and the question becomes, how
do we improve the reverse mortgage regulatory framework with
the objective of constantly increasing the private sector's
role while diminishing the taxpayers' role?
I want to thank the witnesses for being here today, and I
want to thank the Chair for the time.
Chairwoman Biggert. With that, I would like to recognize
that we have some members of the Parliament of Moldova sitting
over here. Please stand. They are our counterparts in the
financial services in the Parliament of Moldova. Thank you so
much for being here.
I would now like to introduce our witnesses: Mr. Charles
Coulter, Deputy Assistant Secretary for Single Family Housing,
U.S. Department of Housing and Urban Development; Mr. Peter
Bell, president and chief executive officer, the National
Reverse Mortgage Lenders Association; Mr. Daniel Fenton,
housing director, Money Management International, Inc.; Mr.
Jeffrey M. Lewis, chief executive officer and chairman,
Generation Mortgage; Dr. Anthony Sanders, distinguished
professor of real estate finance, George Mason University, and
senior scholar, Mercatus Center at George Mason University;
Professor Houman Shadab, associate professor of law, New York
Law School; Dr. Barbara Stucki, vice president, Home Equity
Initiatives, National Council on Aging; and Dr. Lori Trawinski,
senior strategic policy advisor, AARP Policy Public Institute.
Now, you have heard the bells go off, and you will see up
here that we are now having votes on the Floor, which happens
in the afternoon sometimes. And we have to attend to those
pesky votes.
So, we are going to recess for a few minutes. We only have
two votes. We will be back as soon as we can. It shouldn't be
very long, and then we will start with your testimony. Thank
you.
[recess]
Chairwoman Biggert. Thank you for being here. It seems like
you have a little more room. Everybody was really sitting
shoulder to shoulder there for a while.
I would ask unanimous consent that the following materials
be inserted in the hearing record: one, an April 2012 Center
for Retirement Research at Boston College study entitled, ``How
Important is Asset Allocation to Financial Security in
Retirement?''; two, an April 2012 study entitled, ``Reversing
the Conditional Wisdom: Using Home Equities to Supplement
Retirement Income''; and three, a letter dated May 7, 2012, to
Congressman Miller from the Community Associations Institute.
Without objection, it is so ordered.
We will now hear from our panel.
The witnesses' written statements will be made a part of
the record, and you will each be recognized for a 5-minute
summary of your testimony.
With that, we will recognize Mr. Coulter for 5 minutes.
STATEMENT OF CHARLES COULTER, DEPUTY ASSISTANT SECRETARY FOR
SINGLE FAMILY HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
Mr. Coulter. Thank you. Chairwoman Biggert and members of
the subcommittee, thank you for the opportunity to testify
today regarding FHA's Home Equity Conversion Mortgage, or HECM
program. The Housing and Community Development Act of 1987
authorized HUD to conduct a demonstration of HECM loans, and
the program became a permanent FHA insurance program in Fiscal
Year 1998. The HECM is a government-insured reverse mortgage
which enables seniors ages 62 and older to convert a portion of
the equity in their homes into cash. The proceeds of the loans
can be used for a variety of needs faced by seniors, including
healthcare costs, subsistence income, and other such needs.
Since the establishment of the program, HUD has endorsed
approximately 750,000 HECM loans. The HECM program includes
statutory consumer protections to protect homeowners, including
mandatory counseling to ensure that the applicant understands
the HECM product and to determine whether less costly
alternatives are available; a guarantee of timely cash advances
to borrowers in case their lenders cannot make the payments to
them, caps on fees, anti-churning disclosures to ensure that
borrowers are not induced to refinance without benefits or
solely for the benefit of lenders; and a prohibition on cross-
selling HECMs and annuities by anyone who participates in the
origination or counseling for a HECM.
To protect borrowers, as with its forward mortgage
programs, HUD has established servicing guidelines for HECMs,
including a requirement that borrowers be offered loss
mitigation alternatives. If an HECM borrower is unable to
retain their home, options are available to avoid foreclosure.
The mandatory counseling requirement is perhaps the most
important consumer feature of the HECM program. This safeguard
is especially important because counseling assists the borrower
in understanding the HECM loan product, and provides in-depth
information to help seniors make informed decisions. Counseling
is provided by certified HECM counselors at HUD-approved
counseling agencies.
In the past few years, FHA has made a number of
improvements to the program. First, to help diversify and
strengthen the HECM portfolio. In Fiscal Year 2011, HUD created
a new HECM product, the HECM Saver. HECM Saver is a lower-cost
loan option for borrowers who may not require as much equity
coming out of their home. This product is an important
complement to the HECM standard option, and permits borrowers
to choose the HECM product that best meets their particular
needs.
Another improvement to the program that has contributed to
the value of the HECM portfolio was the imposition of new
controls on the potential claim costs of tax and insurance
arrears. HUD's regulations require an HECM borrower to maintain
hazard insurance on the mortgaged property and to pay all
pertinent property charges, such as local real estate taxes, in
a timely manner. Failure to make those payments puts the loan
in default. This guidance instituted controls for the level to
which those arrears may grow before the loan must be declared
due and payable.
Madam Chairwoman, in the more than 3 decades since its
creation, the HECM program has allowed approximately three-
quarters of a million senior citizens to age in place and meet
their healthcare, subsistence, and other needs. And thanks to
the work this Administration has done to strengthen and improve
this program, FHA's independent actuaries have stated that the
program is actuarially sound.
The HECM program is giving senior citizens who have worked
hard to achieve the American dream the opportunity to live
their remaining years with dignity and confidence. Thank you,
and I would be happy to answer any questions you may have.
[The prepared statement of Mr. Coulter can be found on page
45 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Coulter.
Mr. Bell, you are recognized for 5 minutes.
STATEMENT OF PETER H. BELL, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION (NRMLA)
Mr. Bell. Thank you. Madam Chairwoman and members of the
subcommittee, thank you for convening this hearing on FHA's
HECM program and its role in helping fund longevity. This
subcommittee has been sensitive to reverse mortgage issues and
has continually taken steps to improve the program. For that,
we are appreciative, as are the three-quarters of a million
households that have used HECMs.
Presently, there are 578,000 senior households with these
loans, and $11.8 billion was made available through loans
endorsed under the program in Fiscal Year 2011, an amount that
stimulates consumer spending. HECM helps individuals address a
key challenge--how to finance longevity. With life carrying on
for decades beyond our earning years, we must manage assets and
resources to sustain ourselves longer. The equity in a home is
often the largest component of personal wealth. Congress
recognized this when enacting the HECM program in 1987 in a
bill signed into law by President Reagan. My written statement
presents the history of reverse mortgages in the United States,
as well as the legislative history of HECM. I will leave that
to be read, rather than use my limited time here on that.
The HECM statute strikes a balance by assuring the industry
the ability to offer reverse mortgages in exchange for agreeing
to consumer fairness and fiscal soundness. A thoughtful and
responsible partnership of stakeholders, including Congress,
HUD, senior advocates, housing counselors, and the lending
industry, has worked together to keep this program true to its
objectives. Over the years, Congress has amended the HECM
statute nine times, sometimes to clarify wording, other times
to alter substance. The program has resulted in the development
of an important financial management tool that we are able to
offer because of the sharing of risk between the public and
private sectors.
Reports by HUD and AARP, as well as our own research, have
shown strong consumer satisfaction among those who have taken
out these loans. Initially created to help supplement
retirement income, use of the loan has evolved to help in a
number of different circumstances. HECMs are used to pay off
mortgages and debts, enabling borrowers to eliminate monthly
payments and deploy their regular cash flow for day-to-day
living expenses. In other cases, HECMs are used to cover costs
for in-home care, allowing borrowers to avoid a costly stay in
a nursing home.
With the introduction of the HECM Saver, which provides
lower costs to consumers and lower risk to FHA, the program has
drawn interest from financial planners. Many retirees
experience peaks and troughs in their cash needs. As a result,
they are often forced to liquidate assets at inopportune times,
selling stocks into a down market or cashing in certificates of
deposit before maturity. A HECM Saver can provide cash for
immediate needs and then be repaid when investment returns are
higher. The net result, according to models run by leading
financial planners, is that the client will have a larger
amount of money available to meet their funding needs
throughout their retirement.
There are several issues that need to be addressed on the
HECM program. First and foremost is the authorization cap. The
program was made permanent in 1998, but there has been a
statutory limit on the number of loans FHA can insure. Although
the cap has been routinely raised or suspended, its existence
deters some industry participants. NRMLA urges this
subcommittee to support permanently removing the cap to
minimize any possible disruption of HECM. The review undertaken
annually in the budget process provides the opportunity to
monitor program performance. There are also opportunities for
review whenever this subcommittee or the full Financial
Services Committee conducts its periodic and helpful oversight
of the program, or of FHA generally.
The next issue is a Qualified Mortgage. This is a concept
that has emerged in the Dodd-Frank Act to identify
characteristics of mortgages that may be originated and sold
into the secondary market without a risk retention requirement.
The Consumer Financial Protection Bureau is promulgating rules
on this concept. We are requesting they create a definition of
``Qualified Mortgage'' specifically for reverse mortgages so
they may qualify for an exemption from risk retention. This
will help bring back a proprietary reverse mortgage market,
taking some of the burden off of FHA in serving seniors' needs.
It is healthy for the reverse mortgage industry to be able to
offer a range of products, including proprietary reverse
mortgages, in addition to FHA-insured HECMs.
I had other issues to get to here, but I see my clock is
running out, so I will refer you to the written testimony for
those, and, in conclusion, basically state that HECM has been a
useful tool helping hundreds of thousands of seniors maintain
their homes and lead more financially stable lives. The program
has been administered thoughtfully, carefully, and responsibly
by a partnership of stakeholders. This has allowed the reverse
mortgage concept to gain a foothold and prove the value of this
important personal financial management tool as a component of
retirement finance and funding longevity. We thank members of
the subcommittee for your interest in this program, and hope
that we can count upon Congress to demonstrate its support by
further suspending, or preferably removing, the cap on the
number of mortgages FHA can insure. Thank you for the
opportunity to appear here today.
[The prepared statement of Mr. Bell can be found on page 32
of the appendix.]
Chairwoman Biggert. Thank you, Mr. Bell.
Mr. Fenton, you are recognized for 5 minutes.
STATEMENT OF DANIEL FENTON, SENIOR HOUSING DIRECTOR, MONEY
MANAGEMENT INTERNATIONAL, INC. (MMI)
Mr. Fenton. Thank you. Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee, my name is Daniel
Fenton, and I am senior housing director for Money Management
International, or MMI. MMI is a nonprofit HUD-approved housing
counseling agency, providing a range of financial counseling
services including foreclosure prevention, and reverse mortgage
counseling by telephone and in person in more than 100 branch
offices nationwide. We are the largest reverse mortgage
counseling agency in the country, with more than 100 certified
counselors, accounting for approximately 10 percent of all HUD-
certified reverse mortgage counselors.
Thank you for the opportunity to share the perspective of
counselors who, on a daily basis, provide education and
resources to seniors considering the use of a reverse mortgage.
Also, I would like to thank you, Chairwoman Biggert, for
your work in founding the Financial and Economic Literacy
Caucus, and your work in establishing the Office of Housing
Counseling at HUD. We in the housing counseling and financial
literacy community really appreciate your support of our work.
In our experience, seniors choose reverse mortgages for a
variety of reasons. However, the majority do so to better
handle their day-to-day expenses and continue living
independently in their own homes for as long as is practically
possible. While it is extremely helpful to many seniors, a
reverse mortgage is a complex loan, and details of exactly how
it works are generally not well understood. It is essential
that seniors have a thorough understanding of reverse mortgages
before taking out a loan to avoid pitfalls described in my
written testimony. Congress and FHA sought to ensure that
seniors avoid such pitfalls by requiring that all borrowers
participate in a counseling session with a HUD-approved agency
counselor before making a loan application. The counselor's
role is not to encourage or discourage the use of a reverse
mortgage, but to ensure that seniors considering doing so are
able to make an informed choice for themselves. MMI's
counseling process typically takes about 2 hours. It includes
the development of personalized loan example documents, general
education on reverse mortgages and their alternatives, the
creation of an individualized budget, and a welfare-benefits
analysis relating to the client's individual circumstances.
In the last 3 years, HUD has strengthened the effectiveness
of the counseling program nationwide, with a major overhaul of
counseling standards. Major enhancements include a mandatory
exam-based certification for all counselors, and a mandated use
of a standardized test of understanding designed to ensure that
all borrowers demonstrate a basic understanding of how a
reverse mortgage works.
However, while HUD has developed a robust consumer
protection process, Congress has inadvertently created a
counseling-funding model that actually undermines counselors'
ability to meet seniors' needs. We are very grateful for HUD's
reverse mortgage counseling grant funding; however, it does not
nearly cover the cost of counseling services provided
nationwide. We believe that the cost of consumer protection
should not be the exclusive responsibility of government, and
that both seniors receiving reverse mortgages and the reverse
mortgage lending industry should help cover the cost of these
efforts.
Sadly, current legislation makes this impossible. In
particular, language in the Housing and Economic Recovery Act
of 2008, or HERA, specifically prohibits reverse mortgage
lenders from funding reverse mortgage counseling. This was
intended to avoid a conflict of interest. But in reality, it
forces the cost of non-HUD-funded counseling sessions directly
onto all clients seeking counseling. The problem with this is
that prospective borrowers are usually seeking additional funds
to help pay for living expenses, so an up-front fee for
counseling prior to receiving loan proceeds is often a
significant deterrent to seeking counseling at all. Counseling
entities can eliminate the need for an up-front fee by charging
a fee as part of closing costs, but this creates a situation
where counseling organizations are paid on a per loan-closed
basis, which is not ideal, as it makes the agencies dependent
on loan volume for their financial survival.
To address this problem, we suggest amending HERA to allow
for the establishment of a blind trust or funding pool to
compensate counseling agencies on a per client-counseled basis,
irrespective of whether their clients enter into a reverse
mortgage. This could be funded by a standard closing cost
levied on all reverse mortgages, coupled with contributions
from the reverse mortgage industry and government as needed. If
Congress allows the pooling of funds from lenders to support
counseling, the potential conflict of interest is removed and
counseling agencies can adapt to meet the capacity needs of
this industry without relying solely on government funds to
meet the needs of seniors.
In closing, MMI believes that counseling is necessary to
protect the interests of the seniors, as well as the financial
integrity of the reverse mortgage program. We commend HUD for
its efforts to strengthen counseling standards, and we urge
action to improve counseling funding availability so that all
seniors of every income level can receive the education they
need as they evaluate their financial options.
Thank you for this opportunity to present my testimony. I
will be pleased to respond to any questions you may have.
[The prepared statement of Mr. Fenton can be found on page
55 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Fenton.
Mr. Lewis, you are recognized for 5 minutes.
STATEMENT OF JEFFREY M. LEWIS, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, GENERATION MORTGAGE
Mr. Lewis. Thank you. I would like to thank you, Chairwoman
Biggert, Congressman Gutierrez, and the other members of the
subcommittee for holding this hearing on the HECM program and
for inviting me to participate. I am the chairman and CEO of
Atlanta-based Generation Mortgage, a mortgage banking firm
originating and servicing reverse mortgages exclusively.
I also serve as the chairman of the Coalition for
Independent Seniors, which is a nonpartisan public policy
coalition dedicated to preserving seniors' financial
independence.
Chairwoman Biggert, you asked me to address several issues:
the current state of the HECM program, its administration; the
benefits to borrowers; the safety and soundness of the program;
and to provide suggestions for regulatory and statutory
changes. I will take each of these in turn.
First, what is the current state of the program? Recently,
MetLife announced their departure from the industry, making
them the third major company to depart the business in the last
15 months. RMS, Urban Financial, Generation Mortgage, One
Reverse, and others, have stepped into the void to continue to
make the product fully available across the country.
To provide some perspective, I would note that from 1989 to
2006, no major financial brands participated in the reverse
mortgage industry, yet the marketplace grew steadily. None of
the companies that departed expressed any concerns over the
quality of the HECM product itself.
A concern for those who left and a continued concern for
those who remain is tax and insurance, or T and I defaults. The
reverse mortgage is not suitable for every borrower. The
benefits of the product are not outweighed by the financial and
psychological costs of a foreclosure. The industry is working
with FHA, and expects fair and consistent guidelines in the
coming months, that will allow the industry to identify
unsuitable borrowers.
In the future, we also expect to see program modifications,
such as mandated escrow payments, that will protect both
consumers and the FHA insurance fund. A cornerstone of consumer
protection unique to the HECM remains mandatory counseling,
which we strongly support. The new measures being taken on
financial assessment, combined with the existing counseling
requirements, will help ensure the program's future integrity
and sustainability.
Declining home values have certainly had an impact on
overall volume, which is currently running at about half of
what it was 3 years ago. With the changes being implemented,
favorable demographic trends, and some stability in the housing
market, the industry is well-positioned to reverse the down
trend.
FHA and Ginnie Mae have done a fine job administering and
enabling the program to operate in a consumer-friendly and
financially sound manner. Recently, we have seen an overhaul of
both the counseling protocols and the servicing protocols for
defaulted loans. Twice in the last 3 years, FHA has altered the
economic terms of the HECM, reducing the principal limit
factors, and increasing the mortgage insurance premiums charged
on the product. We recognize that the product must support and
sustain itself through the insurance premiums collected, and
that these changes were a good and necessary response to
changes in the housing market.
The current version of the HECM standard, along with the
new HECM Saver, will provide attractive options to the widest
possible range of eligible borrowers. While the reverse
mortgage is not for every borrower, for those seniors who do
meet the criteria, the product can be life-transforming,
especially if it is utilized as part of a comprehensive
retirement plan. The product allows seniors to retire with
dignity, security, comfort, and independence.
I would like to briefly address the question of whether or
not it is healthy for the government to be so dominant in this
market. After all, the Federal Government currently insures
more than 99 percent of all new reverse mortgage originations.
In the traditional mortgage space, the economic difference
between a government loan and a jumbo is marginal. In the
reverse mortgage space, the difference between a government
loan and a private loan is immense. The difference is not a
reflection of increased risk on the part of the government.
Rather, it is a function of the fact that the government's cost
of capital is dramatically less than the private sector's.
FHA's proactive changes to the program have put it on solid
financial footing. We expect the program to stand on its own
without subsidy. And if the housing market were to deteriorate
meaningfully, we would expect FHA to act accordingly and
increase the costs of the loan. At the same time, if the
housing market improves, we would be delighted to see the terms
of the loan improve as well.
You asked me to also suggest regulatory and statutory
changes. On the regulatory front, the industry has been
actively engaged with the new CFPB in their ongoing reverse
mortgage study. We look forward to their findings and any
changes they suggest that will truly protect consumers.
As the only originator of jumbo reverse mortgages,
Generation would enthusiastically support a definition of
``Qualified Mortgage'' that includes all reverse mortgages.
This would increase the probability that our jumbo product
could be distributed broadly to investors.
There is one final issue I would like to touch on--
comprehensive retirement planning. A provision in the 2008
Housing and Economic Recovery Act designed to protect consumers
from the bundling of inappropriate financial products for the
HECM has had the unintended consequence of limiting consumer
choice. It might be prudent to examine ways to allow licensed
and competent professionals to provide comprehensive planning,
while continuing to protect consumers. Such a change would
benefit consumers and also serve as an incentive for major
companies to get back into the reverse mortgage space.
Last month, the Center for Retirement Research at Boston
College released a study on how important asset allocation is
to financial security and retirement. The study concludes by
noting that, ``Financial advisers would be of greater help to
their clients if they focused on a broad array of tools,
including working longer, controlling spending, and taking out
a reverse mortgage.''
Thank you for the opportunity to participate today, and I
look forward to answering your questions.
[The prepared statement of Mr. Lewis can be found on page
63 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Lewis.
Dr. Sanders, you are recognized for 5 minutes.
STATEMENT OF ANTHONY B. SANDERS, DISTINGUISHED PROFESSOR OF
REAL ESTATE FINANCE, GEORGE MASON UNIVERSITY, AND SENIOR
SCHOLAR, MERCATUS CENTER AT GEORGE MASON UNIVERSITY
Mr. Sanders. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, thank you for inviting me to
testify today. My name is Anthony B. Sanders. I am a professor
of finance at George Mason University in the school of
management, and senior scholar at the Mercatus Center. I was
previously director of asset-backed and mortgage-backed
securities research at Deutsche Bank, and the author of
``Securitization'' with Andrew Davidson, as well as numerous
economic and finance publications on housing and the housing
finance system.
The FHA, HUD, and the Federal Government face enormous
challenges going forward. Federal debt held by the public is
currently $10.9 trillion, and has increased by $6 trillion
since January 2007, and $4.6 trillion since President Obama
took office on January 20, 2009. The Federal Government has
been running, with the exception of 1 month, trillion-dollar
deficits, and will continue to do so, which will result in even
more Federal debt. Student loan debt is over $1 trillion and
growing, which is another federally-guaranteed program.
On the housing front, Fannie Mae, Freddie Mac, and the FHA
have captured the mortgage insurance industry with over a 90
percent share. Fannie and Freddie have cost taxpayers $170
billion and counting. And we do not know the final costs of the
14 loan modification programs of the Administration, including
the Attorney General's settlement.
The Administration and Congress are pressuring FHA to allow
Fannie and Freddie to perform principal writedowns, and the
costs could be staggering.
This brings us to the FHA. The FHA, according to Ed Pinto
at the American Enterprise Institute, is deeply insolvent, with
insufficient capital, although I know HUD does not agree with
that sentiment. The FHA is estimated to have a current net
worth of minus $12 billion, and an estimated capital shortfall
between $31 billion and $50 billion. The good news is that the
total delinquency rate in March declined to 15.78 percent,
while the serious delinquency rate declined to 9.47 percent.
The bad news is, today the FHA announced that 50 percent of
their loan modifications have gone into redefault.
Though the U.S. housing market and disarray in housing
prices have continued to decline in many markets, the losses
could mount for the FHA and American taxpayers even further.
And with housing prices declining and the FHA continuing to
insure and subsidize 3.5 percent down mortgages, the question
remains as to why the Federal Government is guaranteeing and
subsidizing reverse mortgages for seniors. Stated differently,
why do taxpayers have to subsidize seniors who want to stay in
their homes when the simple solution is to let seniors sell
their home and either rent a dwelling or purchase a smaller
dwelling that meets their needs when there is also the
possibility of a private market without insurance for reverse
mortgage?
I am not against reverse mortgages as an equity extraction
tool. In fact, I advised the Chancellor of the Exchequer in the
United Kingdom about equity extraction tools over there for
their retirees. But I do not see any reason for the Federal
Government to guarantee and subsidize it. We need to stop
micromanaging the homeownership decisions for American
households. The Clinton Administration tried it in 1995 with
the National Homeownership Strategy that took all the safeties
off the housing finance system, and that contributed to the
housing bubble and burst. Now Fannie, Freddie, and FHA are
raising credit standards, encouraging those who can't get
credit to rent, creating a rental bubble. Residual residential
rents are rising rapidly in urban areas. In other words, our
policies just keep shifting bubbles from one sector to the
other.
At a minimum, the Federal Government should get out of the
reverse mortgage insurance and subsidization business, or at
least do some sort of loss-sharing agreement that is stronger
than what it is now, which is one of the proposals for Fannie
Mae and Freddie Mac going forward. We have thrown enormous
subsidies at the housing market, have tried to steer households
into ownership, then renting, now steering seniors toward
equity extraction. We need to think about how much the housing
market should be subsidized. Mortgage interest deductions,
subsidized housing insurance, low-downpayment loans, clearly
the massive subsidization has distorted housing and the housing
finance market, and changes should be made.
There are numerous proposals for ending the housing
government monopoly, including eliminating Fannie and Freddie,
converting them to a public utility and reinsurance company.
But no matter how we deal with the government housing
monopolies, we need to address how much we want to subsidize
it. So, a reverse mortgage for seniors is a reasonable idea,
but it should not be guaranteed by the Federal Government. It
is an ownership decision, and the Federal Government should
stop trying to micromanage this decision, particularly since
there is an easy alternative: either private market reverse
mortgages; or just selling their dwelling and moving into
rental or a new home.
Thank you very much for the opportunity to testify.
[The prepared statement of Dr. Sanders can be found on page
76 of the appendix.]
Chairwoman Biggert. Thank you, Dr. Sanders.
Mr. Shadab, you are recognized for 5 minutes.
STATEMENT OF HOUMAN B. SHADAB, ASSOCIATE PROFESSOR OF LAW, NEW
YORK LAW SCHOOL
Mr. Shadab. Madam Chairwoman and members of the
subcommittee, thank you for inviting me here to testify on the
Federal Housing Administration's HECM program for reverse
mortgages. My name is Houman Shadab, and I am an associate
professor of law at New York Law School. A significant portion
of my research focuses on instruments that transfer credit
risk, including mortgage-backed securities and credit default
swaps. My testimony will focus on the financing of reverse
mortgages, and not consumer protection issues.
Based upon my research, I find that as housing prices
stabilize and the broader economy recovers, a reverse mortgage
market would likely be sustainable without FHA insurance. This
is primarily because the securitization of conventional non-
HECM reverse mortgages can likely take place on a large scale
even without a government guarantee.
By way of background, the Department of Housing and Urban
Development is involved in the reverse mortgage market in two
fundamental ways. At the loan level, FHA insures and regulates
qualifying reverse mortgages under the HECM program. This
insurance protects lenders against the risk that the value of
the home will be less than what is owed when payment comes due.
HECM loans currently comprise 95 percent of the market. As of
year-end 2011, the estimated outstanding balance of all HECM
loans was approximately $87 billion.
HUD is also involved in reverse mortgage securitization
through Ginnie Mae, which guarantees the principal and interest
payments of HECM mortgage-backed securities. Through year-end
2011, a total of $27.7 billion in HECM mortgage-backed
securities had been issued.
Now, there are several reasons why a private reverse
mortgage market could exist even without FHA insurance or
Ginnie Mae-sponsored securitization. First, prior to the
financial crisis of 2008, conventional reverse mortgages were
widely available, and the market was steadily growing. After
peaking in 2007, about 16 percent of the volume of reverse
mortgages were conventional loans. Lenders stopped making
conventional reverse mortgages during the financial crises due
to the economic shock that caused the secondary market to
collapse.
Second, the overall demand for reverse mortgages is likely
to increase dramatically in the next several years due to an
aging population, growing healthcare costs, and a lack of
sufficient savings for retirement. Indeed, a 2009 estimate by
Reverse Mortgage Insights found that only 2 percent of the
potential reverse mortgage market was being served.
As the demand for reverse mortgages grows, the demand for
conventional reverse mortgages will grow as well. The small
market share of conventional reverse mortgages is likely also
due to their inability to compete with HECM loans. Indeed,
Fannie Mae's 2008 decision to stop offering a conventional
reverse mortgage product was due to Congress expanding the
scope of the HECM program. Most importantly, a substantial
market for private mortgage--reverse mortgage-backed securities
without governmental guarantees likely to develop and support
the growth of the conventional reverse mortgage market.
Although private reverse mortgage securitization volumes have
been modest, they have already taken place without any
governmental guarantees.
Indeed, the first securitization of reverse mortgages in
1999 was a private transaction. In 2005, Lehman Brothers
privately securitized conventional reverse mortgages in a $503
million deal. In 2006 and 2007, $2.7 billion of private reverse
mortgage-backed securities were issued. The private market thus
seems to be have been growing when the financial crisis caused
the market for all private securitizations to collapse.
Putting things in perspective, we should keep in mind that
there is currently a multibillion-dollar securitization market
that operates without any governmental guarantees--2011 saw the
issuance of $30 billion in private commercial mortgaged-backed
securities, $12.3 billion of securities backed by commercial
loans, and $60.2 billion of securities backed by credit card
receivables.
Even in 2000, prior to the development of recent housing
and securitization bubbles, $57.8 billion of private forward
mortgage-backed securities were issued. This large, private
securitization market reflects a strong appetite among
investors for structured debt securities that do not have
governmental guarantees. Over time, this appetite is likely to
extend to reverse mortgage securitization as well.
Importantly, private securitizations of commercial
mortgages, credit cards, and loans began in the mid-1980s to
early 1990s, and it took several years for those markets to
mature and grow. By contrast, private securitizations of
reverse mortgages were in their infancy before the financial
crisis hit. Accordingly, Congress should not expand the HECM
program. Instead, Congress should consider reducing FHA
insurance for HECM loans, and also consider reducing the
guarantee provided by Ginnie Mae for securities backed by
HECMs. These reductions would likely not pose a long-term
problem for borrowers seeking reasonably priced reverse
mortgages. As the private securitization market grows, the
availability of lower-cost conventional mortgages will grow as
well.
In addition, reducing the role of FHA and Ginnie Mae will
help to ensure that taxpayer funds are not put at risk by being
used to subsidize the activities of financial institutions.
Thank you very much for the opportunity to share my views.
I look forward to any questions you may have.
[The prepared statement of Professor Shadab can be found on
page 85 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Shadab.
Dr. Stucki, you are recognized for 5 minutes.
STATEMENT OF BARBARA STUCKI, PH.D., VICE PRESIDENT, HOME EQUITY
INITIATIVES NATIONAL COUNCIL ON AGING (NCOA)
Ms. Stucki. Chairwoman Biggert, Ranking Member Gutierrez,
and esteemed members of the committee, on behalf of the
National Council on Aging, I appreciate the opportunity to
testify today. NCOA is a nonprofit service and advocacy
organization whose mission is to improve the health and
economic security of millions of older adults, especially those
who are vulnerable and disadvantaged. I am here to talk about
ways to sustain and improve the HECM program. My remarks are
grounded in our research and our experience as a HUD-approved
HECM counseling intermediary.
There are three issues that I will discuss today. First, as
you examine the HECM program, remember that it was designed for
seniors with modest incomes, many of whom are underserved by
the financial industry. We estimate that about 44 percent of
reverse mortgage counseling clients have incomes under 200
percent of the Federal poverty level. As people live longer,
they need to take more responsibility to safeguard their health
and financial security. Home equity is becoming part of the
solution due to the widespread inadequacy of retirement
savings. As a result, the issue for many low- to moderate-
income seniors today is not whether to tap this asset, but when
and how.
Older homeowners consider HECM loans for many reasons,
including additional income to plan ahead for emergencies, and
to pay for home repairs or improvements. These loans can also
strengthen the capacity for independent living. Among
counseling clients, about 46 percent are widowed or divorced;
12 percent have had a hospital or nursing home stay in the 6-
month period before counseling. Almost 1 in 10 consider this
loan to pay for out-of-pocket health expenses.
A growing number of older homeowners will need guidance on
reverse mortgages, so we urge you to adequately fund HECM
counseling. Additional support for research, using data
collected through the counseling process, will also help to
strengthen consumer protections and reduce the risk of loan
default.
Second, keep in mind that reverse mortgage borrowers are at
the leading edge of a new trend to use home equity. Several
years ago, 73 percent of borrowers took out this loan to
improve their quality of life. Now, 67 percent of counseling
clients want to lower debt. Seniors who take out a reverse
mortgage when they face serious financial difficulties are at a
higher risk of defaulting. These findings suggest that the
long-term sustainability of the HECM program rests on
increasing the use of these loans as more than a tool for
crisis management. As the baby-boomer generation ages, reverse
mortgages may become part of retirement planning. The average
age of HECM borrowers has declined from about 77 in 1990 down
to 72 in 2012. About 1 in 5 counseling clients are baby boomers
age 62 to 64. Borrowers must meet their ongoing obligations,
including paying property taxes and insurance.
However, it will be important to ensure that HUD
regulations, such as the financial assessments lenders may
conduct at origination, do not become overly restrictive so
that the HECM program remains a viable option for the cash-poor
seniors for whom it was originally intended.
Third, it is important to understand that the HECM program
serves as an important platform for innovation. Over the past
10 years, reverse mortgages have evolved as a product and as a
financing solution. Declines in loan endorsements indicate that
HECMs must continue to evolve.
To meet these challenges, HUD should be encouraged to
continue collaborative efforts with the mortgage industry,
housing programs, and the aging services community. For
example, efforts are under way to integrate HECM counseling
with assistance from social service agencies to support
borrowers in default. These efforts could be expanded to help
those with chronic conditions to stay at home and avoid the
need to rely on Medicaid.
HUD has also made it easier for homeowners to learn about
public benefits by requiring that HECM counselors conduct a
benefits check-up screening for clients with incomes under 200
percent of poverty. This has helped more than 71,000 seniors
find over $378 million worth of annual benefits.
In conclusion, NCOA believes that the long-term viability
of the HECM program will be enhanced through a balanced
approach that ensures strong oversight but also supports
continuing collaborative research and development. We need
strong consumer protections, but also want to give older
homeowners the flexibility to meet their evolving financial
needs.
Thank you again for this opportunity to share NCOA's
research and insights into the HECM program and older
homeowners who consider these loans. I would be happy to answer
any questions you may have.
[The prepared statement of Dr. Stucki can be found on page
92 of the appendix.]
Chairwoman Biggert. Thank you, Dr. Stucki.
Dr. Trawinski, you are recognized for 5 minutes.
STATEMENT OF LORI A. TRAWINSKI, PH.D., SENIOR STRATEGIC POLICY
ADVISOR, AARP PUBLIC POLICY INSTITUTE
Ms. Trawinski. Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee, thank you for the
opportunity to testify on behalf of AARP on the oversight of
the Federal Housing Administration's reverse mortgage program.
As the largest nonprofit, nonpartisan membership organization
representing people age 50 and older, AARP advocates for
policies that enhance and protect the economic security of
older individuals.
AARP's history of involvement with the HECM program dates
back to the 1980s. We believed then, as we do now, that older
Americans should have a means by which to access their home
equity without having to sell their homes or take on loans that
will stretch their already tight budgets. Housing counseling is
a major component of the consumer protections for HECM loans.
Despite recent improvements to the counseling protocol, it
appears that problems remain. Some counselors tell us they need
2 or more hours to cover all the topics required by the
protocol. In contrast, other counselors, mainly telephone
counselors, manage to conduct the session in less than 1 hour.
We believe that this discrepancy may highlight a problem with
the quality of counseling, and we urge HUD to investigate.
We also believe that the housing counseling program should
be fully funded by Congress, particularly since counseling is
required by law, and lenders are prohibited from paying for
counseling on behalf of borrowers.
Additional funds should be allocated to foreclosure
mitigation counseling to assist borrowers who have the capacity
to become current on their obligations and avoid foreclosure.
As a result of continuing problems with technical defaults for
nonpayment of taxes and insurance, HUD plans to propose a rule
requiring financial assessments for borrowers. AARP understands
the need to examine a borrower's ability to pay property
charges and to be able to maintain their property. However, we
do not believe that credit scores, payment history, or the
existence of a bankruptcy filing or foreclosure should be part
of the financial assessment. The determination should be
whether borrowers have the ability to meet their basic living
expenses, financial obligations, and property charges. And this
should be determined after taking the cash flow from the
potential reverse mortgage into consideration.
Disclosures play an important role in consumer protection.
AARP looks forward to working with the Consumer Financial
Protection Bureau on the forthcoming redesign of disclosures
for reverse mortgages. AARP also recommends that statements
from mortgage servicers for borrowers who have a line-of-credit
option should be required to provide more detailed information
on credit-line growth and available credit.
We have all seen the television commercials. It is unlikely
that the designers of the HECM program ever envisioned that
``the Fonz'' and ``I Dream of Jeannie'' would appear in
American living rooms to enlighten people about the benefits of
a reverse mortgage. Some advertisements may create the
impression that a reverse mortgage is a Federal benefit rather
than a loan. While it is appropriate to educate the public
about the availability of reverse mortgages, mass marketing
should not be misleading or deceptive. It should be clear that
celebrities are paid spokesmen. Despite guidance from the
Reverse Mortgage Lenders Association, that is always not clear
in the advertisements.
Another area of concern is the free-lunch seminar. It
appears that investment salespersons may be presenting reverse
mortgages as a means of paying for their products. This cross-
selling may not be in the best interests of consumers. AARP
urges the Consumer Financial Protection Bureau and the State
financial regulators to monitor reverse mortgage advertising
and the use of free-lunch seminars to ensure that there is no
inappropriate marketing or cross-selling. AARP continues to
believe that older Americans should have a means by which to
access their home equity without having to sell their homes,
and we believe that a reverse mortgage can be an appropriate
financial product for some people.
AARP urges HUD to act in a timely manner to promulgate
rules that prohibit cross-selling and to promulgate rules for
financial assessments of borrowers. In addition, we support the
development of a wider-reaching program to assist borrowers who
are in default before the loan reaches the foreclosure stage.
AARP also urges the following statutory changes: removal of
the statutory limit on the number of loans that can be insured
by FHA; and an appropriation of sufficient funds to make sure
that borrowers have access to the housing counselors they
require and the capital they need.
AARP supports the continuation of the HECM program, and we
look forward to working with you and other stakeholders to
ensure that older Americans can tap their home equity with
safe, affordable, government-insured mortgage loans.
Thank you for the opportunity to share AARP's views. I
would be happy to answer any questions.
Chairwoman Biggert. Thank you so much.
[The prepared statement of Dr. Trawinski can be found on
page 99 of the appendix.]
Chairwoman Biggert. We will now turn to the Members for
questions. And we will do a 5-minute clip. I will begin by
recognizing myself for 5 minutes.
Mr. Coulter, the FHA-HECM product was created and made
available to the public in 1989, with the intent of meeting the
special needs of the elderly homeowners. In the past 6 months,
Congress has learned that the FHA is in a precarious financial
position, admitting that it could lose up to $688 million but
for the settlement that was just reached.
Can you tell us why the government should support a 100
percent taxpayer-guaranteed reverse mortgage product?
Mr. Coulter. Thank you for the question. And as you pointed
out, the $688 million figure was before the Department of
Justice settlement on servicing. That is our aggregate
portfolio.
With regard to the HECM portfolio, we are required to have
each book be actuarially sound. So we in our budgeting process,
we estimate the net present value or the net economic benefit
of each book. And to the extent that book is not actuarially
sound, we are required to ask for an appropriation.
What has happened in the past is at times, that
appropriation has not been granted, and so FHA has taken
definitive steps to address the economic circumstances of the
book, specifically by addressing the principal limit factor and
raising the premiums on the book. So the bottom line is on a
go-forward basis. We expect each book to at least pay for
itself on a year-in, year-out basis, if not draw positive
economic value to the insurance fund.
Chairwoman Biggert. All right. Thank you. So, the book that
you speak of is your book of business?
Mr. Coulter. That is correct, yes.
Chairwoman Biggert. Thank you. Then, Mr. Bell--and I will
come back to Mr. Coulter on this too--you mentioned in your
testimony that Wells Fargo, or that some of the banks, Bank of
America and MetLife, withdrew from the reverse mortgage market
in the past 2 years, with MetLife withdrawing as recently as in
this past month. Why did they leave? Mr. Bell?
Mr. Bell. Well, each case is very different. And I was not
privy to the deliberations that went on internally in each of
those companies that led to this. But on the high level, the
public reporting in each case was about a broad set of issues
that were not particular to the HECM program, but really had to
do with their overall business model. In the case of MetLife,
they exited mortgage banking and banking entirely. And the
reverse mortgage exit was just part of that whole overall
effort to--
Chairwoman Biggert. It seems that the media reports have
indicated that some of these entities withdrew because they
were not able to underwrite using the borrowers' ability to
make timely payments on insurance and taxes.
Mr. Coulter, would you--
Mr. Coulter. Sure, I would be happy to take the question.
Certainly, when lenders exit a program, we are very concerned
about that, and we do talk to these lenders about why they are
making those decisions. Mr. Bell's comments around the
strategic misalignment with the business is certainly a driving
factor for MetLife, and to a lesser degree with Wells Fargo.
But there are other underlying issues that we are looking
at very carefully. One example is tax and insurance defaults.
Lenders are concerned about the number of tax and insurance
defaults, and the fact that those could lead to circumstances
where foreclosure on a senior borrower is required. And
obviously, that creates risk, reputation risk to the lender.
So, addressing that issue is something on which we are very
focused.
The other factor that is a consideration for some of these
larger institutions is the fact that they don't get--in some
cases, their auditors are making the determination. They don't
get true sale treatment when they originate and securitize and
sell a Ginnie Mae security. That means in essence, instead of
getting those loans off of their books, they are required to
hold capital against that, against those HECM loans, despite
the fact that they sold them away.
Chairwoman Biggert. Early on, we heard that some of these
reverse mortgages were used, there was just a bulk delivery of
the money to use for their income, and then it was spent right
away. This was fixed, wasn't it?
Mr. Coulter. There are a number of different options that a
senior has. And it is at their option that they--they make a
determination as to whether to take a lump sum payment up
front. Or to receive a payment over a period of time up through
the time that they are 100 is one alternative. So they can
either realize it on an annuity payment or they can realize an
up-front payment.
To be candid with you, many seniors do opt for an up-front
payment. And our experience right now is that most of these
loans are drawn down to 80 percent of the maximum at the time
of origination.
Chairwoman Biggert. Okay. Thank you. I now recognize the
gentleman from Illinois, Mr. Gutierrez.
Mr. Gutierrez. Thank you. I had one follow-up on your
question. So Mr. Coulter, in 2010 the HUD IG identified 13,000
defaults where lenders had essentially granted unlimited
forbearance to borrowers who had defaulted because they did not
pay their property taxes and insurance rather than comply with
the terms of the HECM program.
Can you tell us what risks this posed to the program and
what steps HUD is taking to minimize that risk?
Mr. Coulter. Certainly. Thank you for the question. In
early 2011, HUD put out a mortgagee letter to address this
issue around tax and insurance defaults. You can imagine that,
when going back prior to the housing crisis, there was
substantial equity in many of these homes. So, servicers were
advancing on behalf of borrowers, and there weren't huge issues
associated with that.
Mr. Gutierrez. What are we doing so that--
Mr. Coulter. Today what is happening is, we lay out very
clear criteria for how much a servicer can advance, and we ask
the servicers to work very closely with the borrowers to ensure
that they are either put on some sort of payment plan or we
work through other loss mitigation measures to ensure that an
issue of tax and insurance--
Mr. Gutierrez. Why don't we just avoid it altogether? Why
isn't just an escrow account established to pay property taxes?
That is the way I bought my first house. If I didn't--I had to
establish, first of all, when I bought the house back in 1980--
I know that is a long time ago--I had to establish it, first of
all, and fund it, and then I had to continue to fund it. And if
it was underfunded at any time because of my property taxes,
there was an immediate demand for me to comply with that escrow
account.
Why isn't that done?
Mr. Coulter. Let me say that we do believe that we have to
address this issue around tax and insurance defaults. And one
alternative is an escrow account. We don't have the authority
to require escrows at this point.
Mr. Gutierrez. We don't have the authority to address
escrow accounts, but we are going to back the mortgages?
Mr. Coulter. I missed the last part of the question.
Mr. Gutierrez. But we are involved in backing the
mortgages?
Mr. Coulter. We don't have the authority in the case--in
the case of a forward mortgage, we do require escrow accounts.
In the case of a reverse mortgage, we do not have the authority
to require it. We are looking at a potential rule that would
address this by virtue of doing a set-aside to make tax and
insurance payments. And we believe that is an appropriate next
step.
Mr. Gutierrez. So we just continue talking; there are
13,000, and there is no sense of urgency in getting this done?
Mr. Coulter. Oh, there is absolutely a sense of urgency in
getting it done. Yes, sir.
Mr. Gutierrez. But we are continuing to back the mortgages
irrespective of this--it seems like a pretty easy way to make
sure someone is going to pay that.
Mr. Coulter. There are two things that we are doing to
address this. One is--
Mr. Gutierrez. I get it. But it seems--so maybe you could
write to us and tell us and give us a timeframe in which this
is going to be addressed so that we don't continue. Because it
just seems to me that for the viability of the program, I don't
see why the Federal Government should be there, the taxpayers,
anybody should be, unless you are going to put some pretty
good--so somebody is using this because they need the money.
And we find more and more that people are getting a lump sum.
That is, here is your money.
What is the guarantee, if you are not keeping any of the
money, to make sure that potential property taxes and insurance
are being paid?
Mr. Coulter. You are highlighting a need for a set-aside to
pay taxes and insurance and for a financial assessment at the
time the loan is made. We agree with you wholeheartedly on both
of those points, and we will respond back to you in writing
with regard to when that will happen.
Mr. Gutierrez. Do you find that more and more people are
taking the whole amount, or are they taking an annuity?
Mr. Coulter. As I mentioned a moment ago, our experience
today is that, on average, borrowers are drawing down 80
percent at the time of origination.
Mr. Gutierrez. 80 percent?
Mr. Coulter. Yes.
Mr. Gutierrez. So they are drawing down 80 percent of the
money?
Mr. Coulter. That is correct. But understand that the
principal limit factors to draw down 80 percent--they are doing
that on our standard HECM program. The principal limit factors
on those programs would restrict the amount that they could
draw, such that the principal balances should not grow beyond
the appraised value of the property over the life of the
borrower.
Mr. Gutierrez. I don't have any further questions.
Chairwoman Biggert. Thank you. I hope that will be for the
record in writing. That will be helpful.
Mr. Lewis, can you explain the definition of true sale as
it relates to reverse mortgages? And how does it affect reverse
mortgage lenders and securitization?
Mr. Lewis. Sure. I am not an accountant, and I don't play
one on television, but I will do my best.
Chairwoman Biggert. All right.
Mr. Lewis. The basic issue surrounding true sale is
whether--when the loans have been placed into the
securitization, into the Ginnie Mae HMBS--whether from an
accounting perspective the assets leave the books of the
seller. So what we are doing in fact is selling loans, putting
them into a trust. The trust is then being sold to an investor.
So, they are physically leaving our balance sheet. But from an
accounting perspective, the accountants are saying this is
really essentially a financing rather than a sale. So that when
we look at the books of an originator, those loans are still on
their books.
If you look at our company, Generation Mortgage, we have
issued about $3 billion in Ginnie Mae HMBS. And even though our
real economic balance sheet is probably $100 million of assets
and liabilities, the way that our accounting presently
represents the books of Generation Mortgage, it looks like we
have $3 billion of assets and liabilities. That is a
significant impediment to certain kinds of institutions
participating in the marketplace.
Chairwoman Biggert. So what would happen to the financing
available for reverse mortgages if securitors cannot get true
sale treatment when they sell reverse mortgage securitizations
to investors?
Mr. Lewis. Certain kinds of regulated institutions are
going to be required to post capital against the size of their
balance sheet. So you are unlikely to get widespread
participation by financial institutions like the companies
which have already left the industry. And I am sure that--
again, I am not privy to the internal discussions that took
place at MetLife--that this was definitely probably an issue
for them.
And as we look at people looking entering the space and
joining the market, even parties that are not financial
institutions are given pause by this lack of sale treatment,
because at the end of the day, if they make an investment, it
is probably with an idea that at some point, they would exit
it. And to whom are you going to sell the business if whoever
you are going to sell the business to has to take on this very
large parent balance sheet?
Chairwoman Biggert. As long as we don't start slicing and
dicing. Thank you.
Dr. Sanders, the HECM program has shown an explosive growth
in the last 6 years, and more than 78 percent of total HECMs
endorsed since 2006. The New York Times said in 2010 that the
increase is due partly to the recession, which has squeezed
retirees, and partly to more aggressive marketing.
Wall Street investors have recently become bigger buyers of
the reverse mortgages that are packaged into these securities.
And that has made reverse lending more profitable, causing
lenders to push the loans harder. And they also said, ``If all
this sounds chillingly familiar, it should.''
What do you make of the growth in the program? And does it
spell a retreat of what we went through in the forward mortgage
market in 2007 and 2008?
Mr. Sanders. Thank you for the question. First of all, I
want to point out that everyone loves a guarantee, particularly
if someone else pays for it. That was part of the problem we
had with the original housing bubble, is that we had subsidies
and guarantees galore, and then the market blew out of control.
The market has collapsed. Now, here we are, sitting on this
one. And so, that is my fear.
Now, there is a solution for Freddie and Fannie, and one
can be applied here as well. How about a simple risk-sharing
rule if you are not willing to get rid of the guarantee? That
way, you have the lender--Mr. Lewis already mentioned the
capital issue related to securitization. Why not have a
stronger risk-sharing role that the lenders have to take a big
piece of this if they don't do this properly? And I would even
suggest maybe a little risk-sharing role for the counselors,
since they are the ones who are advocating or advising people
to get into this. How about if they take a piece of the action
if this doesn't work out so well?
Say ``yes.'' I didn't think that would go over too well at
the table, but I just thought I would throw it out there.
Chairwoman Biggert. Thank you. Then Mr. Fenton, do you
think that this committee can do anything to further consumer
protection improvements in the HECM program? What suggestions
would you have?
Mr. Fenton. Thank you for the question. I think at this
stage, that the regulating body, HUD, has the tools to
effectively oversee the reverse mortgage counseling program.
Specifically, they have detailed data going down to a per-
counseling session basis on the time involved with each
session. They have powers to provide agency reviews and review
individual files. They have a specific reverse mortgage review
process for housing counseling agencies. Quite honestly, I
think the tools are there. It is really a question of energetic
enforcement.
Chairwoman Biggert. When you have a 2- or 2\1/2\-hour
counseling session, is this done generally on the phone or in
person?
Mr. Fenton. Thank you. For our particular organization, the
majority of sessions are done over the telephone. The 2\1/2\
hours is really split into three different parts. As you can
imagine, sitting on the phone for 2\1/2\ hours would be
challenging for anyone.
It is actually done in three parts. There is a kind of
document introductory, document preparation session; there is a
general education session around the reverse mortgage and
alternatives and so on; and then the final piece is the
individualized budgeting welfare benefits analysis. The process
is the same on the phone or face-to-face. For our organization,
there is literally no difference in the way we approach that.
Chairwoman Biggert. How do you measure the effectiveness or
define the effectiveness of the counseling?
Mr. Fenton. For our organization, the process we use is an
internal quality control process. We regularly monitor
counseling sessions and score the performance of those
counseling sessions. We record them, I should say. We record
them and score them against a pre-set template, which is
basically tracking the necessary scores. It gets used on a
monthly basis to either ``attaboy'' good counselors or look for
improvements where there is work that needs doing.
Chairwoman Biggert. Thank you. Mr. Shadab, in your
testimony, you note that the demand for reverse mortgages is
likely to grow substantially over the next several years due to
an aging population and growing healthcare costs and lack of
savings for retirement.
Do you believe that the private market can support this
growing demand? Or if so, how do you explain that less than 5
percent of the reverse mortgages are currently privately
provided?
Mr. Shadab. Yes. Thanks for the question. I do believe that
the private markets can support what will most likely be a
growing demand for reverse mortgages of all kinds. And
primarily because a secondary market for reverse mortgages will
likely develop as the credit markets sort of heal, including
the securitization markets. The reason right now there is such
a small market share for non-HECM reverse mortgages is because
there is no secondary market for conventional and reverse
mortgages, and also to some extent HECM mortgages are basically
crowding out and outcompeting conventional reverse mortgages
because of the subsidy that they get from governmental
involvement.
Chairwoman Biggert. Thank you. Mr. Dold is recognized for 5
minutes.
Mr. Dold. Thank you, Madam Chairwoman. I appreciate the
time. And again, I want to thank you all for taking your time
to be with us today.
Mr. Lewis, if I may, I would like to just start with you.
Many of us in Congress, along with many of our constituents,
are very concerned about Fannie and Freddie and the ongoing GSE
bailout and the possible future losses at FHA.
How would you distinguish the HECM product from the GSEs
and other FHA products? And what, if anything, distinguishes
the HECM product as a largely private sector solution that can
help us address our growing public policy challenges related to
the increasingly aging population.
Mr. Lewis. Thanks for the question, Congressman. I think
that this is sort of an example of government working in a
fantastic way to reward people for good behavior. The only
people who can use a reverse mortgage are people whose debt
balances are sufficiently low, that the principal limit factors
are sufficient to completely retire their existing debt. The
only people who are going to have access to this product, the
way it is currently set up, are people who have behaved
responsibly. And what we are allowing them to do is utilize
their own funds in a way in which the insurance fund acts and
the way an insurance fund is supposed to, which is that the
people who pay too much insurance premium because the
government doesn't pay any claims, they end up subsidizing the
people where there are claims paid.
And again, our position is that the product should be
priced and should be structured as it is today, in such a
manner that there is no direct cost to the taxpayer.
Mr. Dold. Again Mr. Lewis, if I may, I am just going to
continue with you for a minute.
Mr. Lewis. Sure.
Mr. Dold. All of us on both sides of the aisle support
adequate consumer protection. I think that is safe to say,
especially with respect to financial products. And my
understanding is that the CFPB is conducting a consumer
protection study on the reverse mortgage industry. Of course
all of us understand that regulatory compliance necessarily has
costs, and those costs generally are passed along to the
consumer in the form of higher prices, diminished product
access and availability, or limited service, or product options
and innovations. So we are always looking for that optimal
point where we are adequately protecting consumers, but we are
not unduly restricting legitimate product availability or
imposing unnecessarily high costs on consumers.
Now, with that in mind, let me ask you a few related
questions and then get your reaction, if I may, after I ask a
few of them. And then we can go from there.
First, what regulatory burdens is the industry facing
today, if any? And what role do you see the CFPB playing in
your industry?
Second, given the industry's small size and the expected
future growth to meet our aging population's future demands,
what types of potential regulations do you think would
unnecessarily harm the industry and, by extension, the seniors
who rely upon reverse mortgages for financial independence?
And finally, do you think that the existing housing
counseling requirement diminishes or eliminates the need for
additional broad-based or detailed regulations; or are there
possible improvements to the counseling program that could make
it more effective than an entirely new and broad regulatory
framework?
Mr. Lewis. Okay. I will take the first question in terms of
the regulatory burden that we face today. One of the
interesting aspects to the departure of the national banking
companies that have left is that they only worked with one
layer of supervision, basically at the Federal level. The rest
of us who remain are generally mortgage banking companies. And
so, we have State regulators, and we are a national company, so
we are basically dealing with every State, as well as the
Federal authorities. One of the largest components of our
expense budget is for regulatory compliance, and we are
essentially living in a constant state of examination by one
party or another.
The industry was started in 1989, and has been Federally
dominated in terms of the market share ever since then. And as
such, the Federal Government really has created the regulatory
framework from the beginning. And the industry has always
accepted the understanding that it will be a very highly
regulated, very closely scrutinized industry. We know who you
are our clients are. We know what their circumstances are. And
we understand that no behavior is ever going to be tolerated in
this industry that is not appropriate.
And so we always welcome anything that comes from a
regulatory perspective that is protective of our consumers, as
well as gives them, frankly, more confidence that when they are
involved in this industry, they will be safe.
With respect to the CFPB, I can't speculate on where they
are going to come out. My understanding is that some of what
they are working on is a simplification of disclosures to
consumers generally in mortgage transactions. And I can say
that, as a person who has refinanced my own mortgage and sat at
the table with a thicker pile of papers than this one that was
designed to protect me, I am not sure that the effect of an
ever-increasing stack of paper is ultimately that which is
intended. It ends up actually making it very difficult for
people, I think, to understand what significantly should be
disclosed to them. To the extent that we can simplify
disclosures, make them clearer, or make them more substantive,
I think that would be very, very useful in protecting
consumers.
You talk about the size of the companies that are left in
the industry, relatively small companies bearing this
regulatory burden. I think that we all recognize that it is a
cost of doing business, and we all accept the fact, given who
our consumers are, given the fact that we are primarily making
government loans, that we are going to have to deal with a very
high level of regulation.
It is interesting to note that when the conventional market
was operating more effectively prior to the housing debacle, as
well as today with us making the only jumbo mortgage available
nationally right now, all the lenders have generally, on a
voluntary basis, adopted all the protections that are inherent
in the FHA program in nongovernment loans.
The last question was about existing requirements. We have
a tremendous amount of work that is required of us, but we
accept that in the interests of making sure that consumers are
protected.
Chairwoman Biggert. The gentleman yields back.
The gentleman from California, Mr. Sherman, is recognized
for 5 minutes.
Mr. Sherman. Madam Chairwoman, I want to thank you for
holding these hearings.
Reverse mortgages are particularly important for us in
high-cost areas like the San Fernando Valley. In other areas of
the country, you may have your savings, and then you may have
some equity in your home. In my area, when you get to
retirement age, your savings is your home. And a reverse
mortgage is the only way to stay in your home and tap into your
savings. And so, I thank the gentlemen here for being part of
an industry that allows people in my area to do that.
Mr. Bell, in just about every part of our economy, it is
good for consumers to have competition. And now and then, the
government will make life so uncertain that, without actually
providing any consumer protection, just by being uncertain and
not making up our minds, or having something that has to renew
every year and everybody thinks it is going to renew and maybe
it will or maybe it won't, you get a lot of companies outside
of the industry and you reduce the amount of competition and
that is bad for consumers.
What impact does the need to deal with the authorization
cap each year have on the reverse mortgage market, and what
effect does it have on consumers?
Mr. Bell. It has a lot of impacts.
First of all, from the side of businesses, it makes it hard
to plan long range and to make a long-term commitment to
investing in the infrastructure that one needs to enter this
business. You can't be a mortgage lender in forward mortgages
and just decide overnight to become a reverse mortgage lender.
It requires a different operating platform for origination, a
different servicing platform. So, there is a big capital
investment and intellectual investment required to make that
transition. And the fact that the program could disappear by a
lapse in the authorization authority is a deterrent.
From the consumer side, I think the problem is even
greater. Because one of the things that we stress as an
industry is we want consumers to make an informed decision at a
comfortable pace. We want them to take all of the time that
they need to figure out whether the reverse mortgage really
serves their needs. And, for instance, what we face right now,
come September 30th, we could see this program disappear. So a
consumer who is thinking about this as we get into the fall is
forced to accelerate their decision-making process. That is an
unfair position to put them in.
Mr. Sherman. It seems to be one of the many areas in which
Congress would serve the public if we just made a decision and
made a permanent decision.
I want to commend Mr. Fitzpatrick--since he is not here, we
will tell him I went on and on commending him--and I join with
him in an amendment that we offered and withdrew to strike the
current volume cap on this program since it has been suspended
continuously since 2007.
Mr. Bell, are you seeing any progress in addressing the
widely reported tax and insurance default industry?
Mr. Bell. Yes, there is a lot of progress there. Deputy
Assistant Secretary Coulter referred to some of it earlier. But
there is a bit of activity under way.
First of all, HUD has required the lenders to report more
expeditiously on the status of cases that might be heading to
or in a technical default. The Department has worked with the
counseling community to create a task force of 125 counselors
who have been specifically trained in remedial approaches to
dealing with the tax and default issue. The Department is also
at work on a rule on financial assessment which will give
lenders the ability and guidance on how to underwrite borrowers
to ascertain that they will be able to meet their obligations
once they have their reverse mortgage. And we are also hoping
that rule will give lenders the ability to use their discretion
to either limit the payouts that potential borrowers might face
if they are constrained on their cash flow or to be able to
require a set-aside of some of the funds to be used for that.
So, there is a lot of progress in that area.
We are also finding that remedial counseling for those
people who are already in a technical default oftentimes result
in being able to find other resources to help them handle other
obligations such as home heating fuel assistance, which could
free up money that could then be used to pay taxes, and food
stamps in some cases. So, there has been a lot of progress in
the area and a very strong leadership in that direction.
Mr. Sherman. I am going to see if the chairwoman will let
me sneak in one more question; and that is, can you explain
your organization's Borrow with Confidence campaign?
Mr. Bell. Sure. One of the challenges with reverse
mortgages is that they are a product that is very highly
misunderstood by the general public, and we believe in order
for us to really reach the broad number of people who could
benefit from it, that people have to become comfortable with
the concept, comfortable with the companies that deliver the
reverse mortgages, and that there has to be a very transparent
process for which reverse mortgages are delivered. So our
Borrow with Confidence program is designed to achieve those
objectives.
We have put out a number of tools to help consumers shop
for reverse mortgages to give them information in a non-sales
environment. We have a Web site, Reversemortgage.org, that
takes them through every aspect of reverse mortgage from
originally inquiring about it right through the loan
termination phase. We have put out a document called the
``Roadmap to Reverse Mortgages'' that gives them a very
comprehensive guide. And we also have all of our members
committed to a pledge to consumers that lays out a number of
activities that they can expect from their lender to help them
fully understand the reverse mortgage they are contemplating.
Chairwoman Biggert. I am going to recognize myself again.
Dr. Stucki, you noted in your testimony that the average
age of a HECM borrower has fallen from 76.7 years in 1990 to 72
years in 2012, and the percentage of prospective borrowers aged
62 to 64 has increased 15 percent since 1999. And it seems like
this group is more prone--the 62 to 64 group is more prone to
delinquency than the older borrowers with the most technical
defaults occurring in the first 4 years of the loan. Is there
any implication between this age shift and delinquency
increase?
Ms. Stucki. Thank you for the question.
To the extent that younger borrowers are primarily
interested in managing debt and reducing debt, there is clearly
going to be a greater risk of default. They are more likely be
taking out those lump sums that leave very little to sustain
themselves in the future and to deal with their borrower
obligations.
I think that is why we really need to take generational
differences into account as we think about counseling and some
of the other protections for borrowers. Clearly, older
borrowers more likely to want to be using this to maintain
their health standards, pay for those out-of-pocket health
expenses and others, in contrast with the younger borrowers
being more focused on debt.
I think it is very important that we stress the retirement
planning element of home equity in general and reverse
mortgages in particular so people really understand both how to
use these loans for immediate needs as well as for long-term
sustainability.
Chairwoman Biggert. Thank you very much.
And, Dr. Trawinski, why are the--it is like the phone-based
and in-person counseling sessions are of such different
duration, with the in-person sessions seeming to last
significantly longer. Is there a difference in quality between
the two types?
Ms. Trawinski. Thank you for the question.
I just would like to clarify. My testimony is questioning
the time spent with the client and the idea that sometimes it
seems that the telephone counseling sessions don't seem to take
as long. The issue is time spent with the client, and whether
in less than an hour, you can cover all of the topics.
I have been through the counseling training offered by
NeighborWorks and I can tell you that it would seem to me to be
relatively impossible to cover all of the protocol topics in
less than an hour. So that was the issue.
Chairwoman Biggert. Okay. Thank you.
I think that GAO looked at this issue in 2009, didn't they?
Should they review it again? Is it necessary?
Ms. Trawinski. I think that would in fact be a good idea,
because we hear from counselors all the time, and they have
raised issues with us in this regard.
Chairwoman Biggert. Thank you.
Mr. Coulter, when will HUD publish new regulations or
guidance for lenders? You mentioned these earlier. I think it
is rumored that the CFPB is working on a study, and that was
mentioned here, regarding reverse mortgages. Are you or other
FHA officials familiar with this effort and are you working
with CFPB and what will the study specifically entail.
Mr. Coulter. I am not specifically familiar with the work
that CFPB is doing. I can tell you, however, that the issues we
have talked about here, in particular assessing--doing a
financial assessment, that is something that we are focused on
and we are looking to publish a rule on that on or around the
fourth quarter of this year.
Chairwoman Biggert. Don't you think it is kind of odd that
you are not hearing anything from the CFPB since this is
obviously in HUD, that you haven't talked to them about it or
anything, the study?
Mr. Coulter. I would need to follow up and determine
exactly the nature of the study and what the nature of their
focus is.
Chairwoman Biggert. All right.
When are you going to publish the regulations or guidance
for lenders?
Mr. Coulter. As I mentioned around financial assessments,
we are targeting the fourth quarter of this year.
Chairwoman Biggert. I guess there are no further questions.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit questions to these witnesses
and to place their responses in the record.
And I would like to thank you all. It has been a great
panel, with a lot of information from a lot of different
groups, and that is very important to us. So I thank you all
for being here.
And with that, this hearing is adjourned.
[Whereupon, at 4:13 p.m., the hearing was adjourned.]
A P P E N D I X
May 9, 2012