The budget proposal submitted to Congress by the White House under the administration of President Joe Biden again indicates strong performance for the Home Equity Conversion Mortgage (HECM) program within the Federal Mortgage Mutual Insurance Fund (MMI). Housing Administration (FHA), which could indicate that the program is building on the progress it appears to have made according to the FHA’s annual report to Congress late last year.
That’s according to a section for the US Department of Housing and Urban Development (HUD) in the full budget document released by the White House late last week. HUD is also making several new legislative recommendations for the HECM program, including non-borrowing spouse (NBS) issues, foreclosure notices, and the current HECM loan cap.
Positive return from reverse mortgage program
In the section of the budget for HUD’s summary of loan levels, grant budget authority, and expenses listed by program, the document reveals that FHA’s HECM program is expected to operate at a loan grant level of -4, 19% in fiscal year 2023.
This means HECM is expected to generate more revenue for the federal government than it will pay out in claims for the year’s HECM business volume, marking a potential second consecutive year of positive territory for the HECM portfolio and confidence continues in its solvency from HUD. and the White House.
The estimated subsidy level of the HECM Program Credit for the remainder of FY2022 is estimated at -2.54%, itself a slight improvement over the actual FY2021 figure of -2.39% , as indicated in the budget document.
Based on FY2023 estimates detailed in the proposed budget, the HECM program’s estimated -4.19% credit subsidy means it is currently estimated to outperform the -3.05% credit subsidy. % of the entire MMI Fund. The addition of the new Home Equity Accelerator Loan (HEAL) pilot program, meanwhile, is expected to run at a level of +0.44%, meaning it is estimated to cost the fund. However, this estimate is on a positive trajectory since the same estimate a year ago stood at +1.21%.
The HEAL pilot program is designed to “test new loan products designed to reduce barriers to homeownership for first-generation and/or low-net-worth first-time homebuyers,” according to the “Budget in Brief” document. from HUD submitted with full budget proposal for 2022.
Reverse mortgage-related legislative proposals
In separate HUD Congressional justifications document For its segment of the budget, the ministry makes several legislative suggestions related specifically to the HECM program. Last year, no such recommendation was made.
The first proposal details changes HUD would like to see regarding non-borrowing spouses (NBS) reverse mortgages, describing the current law as “ambiguous” on the limits of foreclosure protections (such as loan deferrals) leading to questions of availability for some NBS who were unidentified during a HECM creation, with an example of a HECM borrower remarrying as one such potential scenario.
“This proposal would clarify that automatic protections only apply to originally identified non-borrowing spouses, consistent with current policy, while establishing flexibility to extend other protections at the Secretary’s discretion,” reads- one in the recommendation.
The next proposal focuses on removing the existing HECM lending cap, the document says.
“This proposal would remove the statutory cap on the number of HECM loans that can be insured by the FHA, which is routinely removed in the 2023 Finance and Appropriation Acts,” it says. As described, this limit has indeed been lifted in the last budget proposal.
HUD is also proposing the “removal of obsolete language” directly related to the ongoing use of a 2001 study to determine HECM awards, which the Department says would have “no practical implications for the program.”
There is also a proposal regarding foreclosure notifications for HECM loans, which would help improve the FHA’s economic performance, the document says.
“This proposal would clarify that notices of foreclosure may be provided to the heirs of a deceased HECM borrower or others named by the borrower in the HECM loan documents to mitigate the risk of unnecessary foreclosure delays and associated costs to FHA,” the proposal reads.
Finally, HUD is making a new proposal regarding reverse mortgage advice specifically with respect to HECM-to-HECM refinance transactions.
“Under current law, prospective borrowers must receive HUD-approved housing counseling to be eligible for a HECM, except that a borrower may waive this refinance requirement if less than five years have passed. since the closing date of their current HECM,” the proposal reads. . “This proposal would extend the advice requirement to refinances of HECMs obtained within the last five years.”
Statement from HUD Secretary
In a document released by HUD containing a statement on the President’s Budget by HUD Secretary Marcia Fudge, the Secretary outlines all of the priorities HUD aims to achieve with the new request, with particular attention to supporting underserved communities. or under-represented, by increasing the supply of housing and promoting wealth building through home ownership.
“The 2023 President’s Budget is requesting $71.9 billion for HUD, approximately $11.6 billion more than the 2022 annualized Continuing Resolution (CR) level,” HUD said in the same release. “The budget lays out an ambitious agenda to address the challenges facing our nation, from climate change to housing discrimination, to racial equity in homeownership and rental housing, to by ending homelessness.”
Addressing labor shortages and filling specific roles, the statement also outlines the investments the ministry will make if this budget is met.
“Budget 2023 requests $1.8 billion for salaries and expenses (M&E), $306 million more than the annualized CR level for 2022, which, combined with the deferral of funding from 2022, will support 8,326 employees. full-time equivalents (FTEs),” the statement reads. “The 2023 budget will support gains made in 2021 and projected for 2022 and will provide for a continued increase in staff, which will enable the Department to serve households and communities more efficiently and effectively across the country.”
The budget also proposes an additional $382 million for the HUD IT Fund to allow for further modernization of HUD’s aging IT systems and infrastructure, which would help strengthen the Department’s cybersecurity posture, says the HUD.