While two recent pieces of legislation ( The Housing & Economic Recovery Act 2008 and The American Recovery & Reinvestment Act of 2009), have had a positive impact upon the nascent reverse mortgage industry, we must be forever vigilant and mindful of lurking unintended consequences imbued in the activities of Congress and regulatory agencies.
Currently there are two appropriation bills affecting this industry that need to be reconciled in conference. Neither bill purports to provide HUD with the money it needs to cover possible losses for the new fiscal year. Rather HUD is told to shape up- Make your program subsidy neutral. In a vacuum and on paper this may look good. The public may think that Congress is finally acting with restraint. However, reality tells a different story. NRMLA has suggested that HUD’s proposed 10 percent reduction solution will effectively prevent about 21% of HECM borrowers from realizing enough money to rid themselves of their existing mortgage.
Too bad seniors do not have an inc. after its name. Government responds to certain industries and to certain corporations. The mortgage industry and seniors in this economic climate do not rate. One has to ask, “Just what is AARP doing? I thought they were advocates for seniors. Maybe they are too busy lining their own pockets with misbegotten expensive insurance programs.
HUD summarily announced an across the board 10% reduction in benefits without giving the industry enough time to make system changes. According to NRMLA, this could cripple the industry. HUD instead is desirous of implementing this change at the beginning of its fiscal year. The unintended consequences of this action could adversely affect thousands of seniors. But who cares?
Taking the appraisal ordering function away from brokers will cause appraisers to work in areas that they are not familiar with. The unintended consequences of this action will cause appraisals to be artificially low. Since values are an important factor in determining benefits, seniors will be hurt. Sadly a mortgage broker has become the poster child for the opprobrious conduct of a mortgage industry that has lost its way.
Government is wonderful at overreacting. Rather than kicking miscreants out of the industry, or raising the entry bar, it creates onerous and draconian rules and laws that are harmful to those it seeks to protect.
HUD is also abrogating its oversight activities. We saw this it with the change in the condo approval process. The unintended consequence of the new condo Mortgagee Letter (2009-19) is that lenders will stop underwriting reverse mortgages for condos. We have already seen the start of this. Hopefully the discomfort level in this area will be short lived.
Now it appears that we will see the same kind of thing with HUD’s correspondent approval process. The hope is that mortgagees approved by HUD will choose to work with quality correspondents and other lenders. As the competition to add correspondents and lenders spirals out of control, we will see additional laws and rule making. So instead of HUD maintaining a prophylactic role in approving worthy lenders and brokers, it is essentially opening up the floodgates to an inordinate number of mortgage companies that will evidence inappropriate behavior toward seniors. This is 5 giant steps backwards.
When an industry is incapable of policing itself, when regulators set inappropriate guidelines, lawmakers will gladly fill the void.
As we have seen, sometimes well intended rules or laws have unforeseen consequences. These unforeseen consequences will hurt senior homeowners and retard the progress of this great industry.
When a particular cohort is treated badly there is the concept of intended consequences. To those lawmakers on the state and federal level who refuse to get it right, who have forgotten what "We the people" means, who try, for example, to convince seniors that they are working in their best interests when they are not, the power of the vote will serve as a good reminder.
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