“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:
“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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