Federal Housing Administration (FHA) Commissioner Julia Gordon offered her insights on the agency’s Home Equity Conversion Mortgage (HECM) program at this year’s National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting and Expo, reflecting on her journey toward greater understanding of both the program itself and the industry that utilizes it.
Gordon also offered some perspectives on FHA’s working relationship with members of the industry, and the sometimes laborious process of vetting incoming suggestions to determine whether they’re worthy of becoming official policy.
Learning more about HECM
When asked about her general observations of the HECM program by NRMLA CEO Peter Bell, Gordon took a reflective stance and shared some of her developmental thinking about the program after she was confirmed as commissioner in 2022. That reflection was also paired with an expectation that the HECM program will grow in concert with the needs of older Americans.
“Before I took this job, I wasn’t an expert on HECM, but I’ve learned a lot in the past couple of years,” she said. “That learning has been really important because this is a product many seniors depend on now, and many more will rely on in the future.
“Today, many people reaching their senior years are not financially prepared for retirement, but there’s a lot of home equity available. While there are other ways to tap that equity, I believe HECM will be a critical piece of the puzzle and the solution.”
Gordon echoed some of her recent statements at a housing counseling event, where she alluded to the idea that education will be important in addressing the needs of seniors. It is also key for clearing up any misconceptions about what the HECM program is and who it could work best for.
“As a longtime consumer advocate, it’s important to me that we do two things,” Gordon said. “First, we need to spread the word about what HECMs are and how they’re part of a regulated government program — not some fly-by-night product.
“Second, as an industry, we need to hold ourselves to the high standards required to demonstrate to people that this product can help them achieve their goals of staying in their homes and aging in place.”
Gordon hopes that this continues to be a point of collaboration between members of the reverse mortgage industry and officials at the U.S. Department of Housing and Urban Development (HUD), which oversees the FHA.
“At FHA, we’re hoping to partner with all of you to address some of the lingering mis-impressions from the financial crisis and ensure people understand the value of HECM,” she said to the industry attendees at the event.
“We need to make sure the program is well run, understandable, and that the secondary market execution remains strong and viable. By doing so, we can meet the rapidly growing needs of the American public.”
Potential program enhancements?
Bell asked about whether Gordon could offer insight into possible HECM program enhancements the department is looking to implement. Gordon took the opportunity to answer in the spirit of the event venue: the Hard Rock Hotel in San Diego.
“I’ve been waiting to use this line until the right moment. I want to say: ‘You can’t always get what you want, but if you try sometime, you’ll find you get what you need,’” she said, echoing the famous lyrics from The Rolling Stones.
She went on to say that neither the industry nor FHA are satisfied with where volumes are — not just for the HECM program but in the FHA forward lending space as well. Still, FHA has fared better than some players in the industry, she said.
“In the forward space at FHA, we can compare ourselves to the overall market and say, ‘Well, not very much is happening, but proportionally, more is happening at FHA than elsewhere.’ We can’t really do that with HECM; we’re kind of on our own here. It’s important for the health of the sector as a whole to be making new mortgages, bringing new loans into the program, and we have to look at the best way to do that.”
The HECM for Purchase program is gaining ground, she said, but now that a declining rate environment is occurring, there may be other potential options available to customers. Because refinances are likely to rise, this also necessitates more awareness and understanding of counseling to maximize the benefit of such a transaction.
Gordon also said the agency is looking more closely at HECM insurance premiums.
“For all borrowers, we need to think about how to keep origination costs down so that the product feels worthwhile to people,” Gordon said. “From our end, we’ve been looking at a proposal from you regarding mortgage insurance premiums — whether there’s a way to restructure them to lower origination costs.
“We’re open to any ideas, including improvements in technology or reconsidering what loan originators charge. If it’s critical to you, it’s something we need to think about. Please come to us with your ideas.”
Policy implementation hurdles
Industry participants at all levels should understand that HUD and FHA can’t always respond quickly to suggestions. Even particularly good ideas need to be properly vetted by a host of officials before they can show up on the FHA’s Single Family Drafting Table.
“We’re a small shop relative to the amount of business we do, and while we get great ideas, they don’t turn around in a month,” Gordon said. “The HUD process is long, with all kinds of clearances. Significant policy changes, especially involving premiums, go to the Office of Management and Budget (OMB), and if it’s regulatory, we go through the Office of Information and Regulatory Affairs (OIRA). So, nothing is speedy.”
Pros and cons emerge from these vetting processes, but participants should not be discouraged if they don’t immediately hear back from an official at HUD or FHA.
“[That] doesn’t mean we’ve forgotten,” she said. “We’re working on it, and our door is always open. You can check back with us if you haven’t heard anything. We’ve got a lot going on, like ducks gliding on the pond with their feet paddling madly underwater. We’re hoping to have some good proposals coming out soon.”