The Reverse Mortgage Blog - by Dennis Haber Esq.

NOW IT's HUDs TURN TO DECLARE WAR ON THE REVERSE MORTGAGE INDUSTRY

It appears that HUD had no qualms about  hastily cutting the reverse mortgage principal limit factor so that  seniors receive 10% less benefits-even though this left the industry in turmoil, while scrambling to comply.   

It seems clear the United States of America has adopted a steely new policy toward older Americans.   While many Hundreds of billions have been paid to major corporations, a small fraction has been concentrated in the area of helping  individuals. One would need a microscope to discover how money is being spent on older Americans. An ordinary microscope would not detect a thing. For that matter, even a powerful electron microscope couldn’t detect governmental spending on senior financial programs.

Over the next two years Social Security recipients will not receive a cost of living increase.

The dough-nut hole in Medicare Part D is a greater challenge as seniors have less assets to cover this mandatory expense.

There are more recovery actions under Medicaid than ever before as states and localities scramble with budgetary shortfalls.

 Congress has collectively refused to subsidize the HECM program for possible losses that may be incurred during the new fiscal year.  Newly sustained increases in the Case-Shiller index could be a harbinger of things to come. Therefore it I possible that HUD’s projections may not be optimistic enough.

The Wall Street Journal reported today (9/29/09) that the Obama administration is thinking of providing 35 billion dollars to provide mortgages for low to moderate income families. Since HUD has made 7 billion dollars on the HECM program since 1992 (according to Susan Mehlman of the Congressional Budget Office as reported in NRMLA's Reverse Mortgage magazine), one would think that a potential temporary downturn could have been fixed by Washington without reducing benefits. Would this not be better than telling the reverse mortgage senior community to drop dead. In fairness, these words were not used, I believe we were told that HUD must maintain a “zero subsidy rate”.  Actually it’s a nice euphemism.

A report in Newsday today indicated that Wall Street has  (euphemistically) invested  11 million dollars on US senators. If Wall Street can hire adroit, powerful  lobbyists, what chance does the average American have?  Answer: not much.

Seniors are  forever being told that they do not have to get a reverse mortgage. They have other options available to them.  So with the dawning of each new day, how many senior homeowners will be unable to sell their homes because of the 8.5 month back log?

With the dawning of each new day, how many senior homeowners will be forced to ask family for money-money relatives now need for themselves?

With the dawning of each new day, how many senior homeowners will be compelled to use their last amount of meager savings?

With the dawning of each new day, how many seniors will now lose their home to foreclosure?

As the HECM benefit amounts are truncated by a factor of 10%, how much more evidence do senior homeowners need that our government- their government  has turned a deaf ear and a blind eye to their needs?

How many seniors will weep at night because they recognize that those simple but lofty words, “We the people” have been replaced by, “We the big corporations”.

And while questions are being raised, how about this one: Just where is the industry’s moral outrage?

Remember the words of Italian write/poet Dante Alighieri : The hottest places in hell are reserved for those who, in time of great moral crisis, maintain their neutrality.

How Unintended Consequences Hurt the HECM program and the Reverse Mortgage Industry

 

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.

The Theory of Reversitivity: What Einstein Would Say About The HECM Reverse Mortgage

The Theory of Relativity is a rather pithy statement that among other things, states that  two events that appear simultaneously to one observer will not appear to be simultaneous to another observer who is in a state of motion. The focus is in the observing.  There are no absolutes.

Einstein’s E=MC² formula described the above noted relationship. The key is in the observing. However, in reverse mortgage parlance, this formula takes on a different meaning.  It means that Evil results  when misconceptions and misreporting (by the media,  regulators, politicians and  senior organizations) are constant and incessant. Although many view media reporting as biased and often one sided, these same people look to the media for viewpoints on unfamiliar topics.

Marty Bell of NRMLA recently wrote a  cogent and extremely well reasoned rebuttal to the current (September)issue of Consumer Reports.  He debunks the articles’ many misstatements that are presented as indisputable and immutable fact.

Inaccurate reporting is only one of the many challenges this industry faces. There are other challenges as well.   I believe that the balance of 2009 will prove to be  pivotal  for the reverse mortgage industry.  It contains the confluence of forces  that could result in the denouement  of a brilliant concept.  Whether the forces of good (the reverse mortgage industry) will triumph apocalyptic ally over the forces of evil  (biased media reporting, political demagoguery,  poor GSE policy decisions,  Congressional indifference toward seniors, poor state legislative initiatives, inappropriate FHA policy decisions) will soon be determined. If  an attitudinal change is not in the offing, then I fear that the program could morph into something vastly different.

The number of reverse mortgage originators as grown exponentially, yet there has not been a similar growth in the program. Considering the potential market, the penetration of same has only shown a slight increase. While many older Americans could never imagine the US economy suffering from depression-like symptoms again, the current recession, has been particularly injurious to their pocket-books and wallets. Likewise, the government’s pocketbook, while resembling a bottomless pit, is facing many major challenges as well.

A parallax view of these challenges  posits , on the one hand, an overwhelming need for  the program while the latter challenge  suggests that political hegemony and political expediency will decide the viability of the HECM program. 

Recently (9/4/09), a front page article in the Wall Street Journal title Loan Losses Spark Concern Over FHA, discusses the rising losses at FHA. In 2 years, FHA’s market share has increased from 2.7% to 23%. Rising defaults have eaten away at FHA’s cash cushion. In 2007 FHA has had a cash cushion of just over 6%. Last year the percentage was down to 3 percent. The question must be asked. How will the overall FHA picture affect the HECM reverse mortgage program? Then of course , FHA is projecting a loss of close to 800 million dollars for the next fiscal year. The House of Representatives already told FHA to drop dead. The Senate said we’ll help a little. Maintaining a subsidy neutral position means that  senior homeowner HECM borrowers will see substantially less money.

Recently there have also been suggestions out of Washington that the GSE’s will need to be revamped. The Housing and Economic Recovery Act (HERA) mandates that Fannie reduce its portfolio. Accordingly, the HECM program has taken it on the chin. Rising margins have definitely hurt.  Eliminating the use of the CMT could turn out to be a bad decision if the worldwide banking community loses confidence- particularly over the geo-political situations in eastern Europe.

The various states need to dispense with the histrionics that reverse mortgage bills are designed to save seniors from unscrupulous individuals and companies serving this market. Often the bills make little sense and serve to drive lenders out of the state. What we need are bills that make sense. There is one main thing that states can do. If they do this 99% of their fears will be assuages. Require separate licensing for reverse mortgage originators and companies. 

 Over the past 20 years HUD has done quite a remarkable job overseeing a  nascent and burgeoning  industry.  An example of this ongoing effort is evidenced by HUD ’s  attempt to standardize counseling and to create a counseling roster(24 CFR Part 206). I would urge HUD to require separate licensing for individual originators as well. States, likewise should create separate licenses for those that participate in this industry. Make it so that only those that care about seniors and about serving their needs are able to serve.

Albert Einstein was able to develop his breakthrough formula because his creativity had no sentimental attachment to the prevailing conventional wisdom. Likewise, the reverse mortgage industry needs to look at this program differently.  The goal of maintaining appropriate  funding levels for those in need is key.  Creativity, with the great minds that make up the industry , is  not in short supply.  I am confident that Washington working hand in hand with this industry can find a better way.  E=mc² represented a whole new way of regarding reality. 

Einstein became a United States citizen because he loved what this  country stood for. The United States represented the tradition of "moral strength".  Accordingly he  would urge that the incessant pressure our elders face must be assuaged with a reverse mortgage reality that continues to meet the needs of seniors across the country.  A politically expedient solution is no solution at all. Ignoring this pressing need places senior homeowners in a very precarious position.  He would never  believe that such a great country could treat elder Americans this way.