Residential: GAO offers FHA 9 tips to improve HECM program

“The Federal Housing Administration (FHA) could do a better job evaluating the performance of its reverse mortgage program and overseeing the companies that service the loans,” says a new report from the Government Accountability Office (GAO).

Citing a rise in defaults from 2% in 2014 to 18% in 2018, GAO offers nine recommendations for improving the Home Equity Conversion Mortgage (HECM) program. The Department of Housing and Urban Development’s (HUD) recent Housing Finance Reform Plan also proposed reforms for the struggling program.

Congress is similarly re-evaluating the HECM program. Two weeks ago, the House Financial Services Committee convened a hearing on the issue with testimony from the National Consumer Law Center, GAO, National Reverse Mortgage Lenders Association and the Urban Institute.

“It’s no secret that the HECM program needs help,” said Stephanie Schader, Vice President at The Collingwood Group, a SitusAMC company. “While it’s promising to see multiple government agencies and Congress looking at how we can stabilize the program, it’s important to build a consensus among all the stakeholders on what to do next.”

Citing the negative capital ratio of 18.8% at the end of Fiscal Year 2018, HUD has recommended FHA develop HECM-specific servicing standards and eliminate HECM-to-HECM refinancing.

GAO offered nine additional recommendations for FHA to consider:

 

  1. Improve the quality and accuracy of HECM termination data – GAO said this might include updating reasons for termination in the Home Equity Reverse Mortgage Information Technology (HERMIT) System.
  2. Establish, review and report on HECM performance – GAO recommends FHA develop and monitor performance indicators, such as defaults, the share of HECMs with delinquent property charges, servicer advances and distressed borrowers who have received loss mitigation options.
  3. Develop analytics to monitor HECM outcomes – GAO suggests FHA create analytic tools, like dashboards, to track outcomes in the HECM portfolio.
  4. Evaluate foreclosure process – FHA should re-examine the foreclosure prioritizing process to better understand the effects on HECM borrowers and neighborhoods.
  5. Conduct on-site servicer reviews – GAO recommends FHA begin on-site reviews of HECM servicers. Review procedures should include a risk-rating system.
  6. Collaborate with CFPB – GAO encourages FHA to work with the Consumer Financial Protection Bureau (CFPB) to share findings from CFPB examinations of HECM servicers.
  7. Establish sharing agreement – FHA and CFPB should complete an agreement to furnish information sharing related to HECM servicer examinations.
  8. Record consumer complains – GAO suggests FHA collect and record inquiries and complaints in a way that “facilitates analysis of the type and frequency of the issues raised.”
  9. Analyze complaint data – GAO recommends FHA analyze internally and externally available consumer complaint data related to reverse mortgages to better inform HECM oversight.

“HECM improvements are long overdue and necessary to maintain the financial viability of the program,” said Schader. “Any reforms to the program should be aimed at ensuring the program is sustainable and commercially marketable to seniors.”

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