President Joe Biden’s administration presented Congress with its federal budget proposal for fiscal year 2022 on Friday afternoon, marked by a figure of $ 6 trillion with an abundance of new spending programs aimed at accelerating the economic recovery of the United States, after suffering the effects of the COVID-19 coronavirus pandemic.
However, the legislative and tentative proposals set out in the Department of Housing and Urban Development (HUD) Congressional Justifications for the White House Budget Proposal specifically for the FHA Fund help provide some insight into the new administration’s outlook on home equity Conversion Mortgage (HECM) and where its strengths and weaknesses lie in relation to the prospects of the previous government.
The latest federal draft budget indicates critically that the $ 180 million application for the Mutual Mortgage Insurance (MMI) fund is for the Federal Housing Administration (FHA) management contract costs; an extension of the Good Neighbor Next Door (GNND) program; and a new Home Equity Accelerator Loan (HEAL) pilot. This adds up to an additional $ 50 million from the regulatory level last year, which FHA attributes primarily to the increased cost of the FHA mortgage service, mainly excluding the HECM service.
Biden budget for MMI funds, HECM program
Most of the increase in the number requested for the MMI fund appears to be due to higher costs associated with HECM servicing, according to the congressional justification document published by the HUD in conjunction with the administration’s budget.
“The main reason for the increase is the growing spending on maintaining the HECM portfolio held by the secretary,” the document reads. Additionally, the mortgage services portfolio held by the secretary continues to grow, partly due to the increased volume of partial claims in response to COVID-19 and disasters. FHA expects to spend significantly more resources servicing these mortgages and selling the properties as soon as they become empty. “
In addition, the budget also calls for a $ 400 billion limit on the loan guarantee, which “includes sufficient powers to insure single-family forward mortgages and HECMs,” the document says. That number remains unchanged from the Trump administration’s final budget proposal presented last February.
Comparison with previous administration
One place where the Biden government differs significantly from its predecessors is in the HECM-related legislative proposals for the MMI fund. In the 2021 budget proposal, under the direction of Secretary Ben Carson, HUD proposed several different legal remedies for the HECM program.
These included the introduction of regional HECM credit limits; a “spouse survival” provision to exempt lenders who otherwise would have to foreclose a living spouse immediately; an update to the 2001 actuarial analysis used by the FHA to determine the adequacy of its HECM insurance premiums; the permanent removal of the limit on the number of HECMs that can be insured by the FHA; and a waiver of the HECM advisory obligation to give the HUD the authority to provide advice for all HECM transactions.
In direct contrast, the Biden HUD budget document companion does not offer any legislative proposals for the HECM program within the MMI fund, despite the new administration’s increased costs associated with HECM support as the cause of the need for an additional US $ 50 million – dollars in the budget of the fund.
Another area of influence of the HECM program, however, resides in the HUD’s Housing Advisory Bureau, and the Biden government appears to value the bureau’s services more than any of its predecessors in relation to the raw funds requested. In the 2021 document, the Trump HUD called for $ 45 million for housing advisory programs, which was $ 8 million less than the level set in 2020. In the case of the Biden HUD, the new request, at $ 85.9 million, is almost double the previous government’s last request.
The Biden HUD is also seeking an additional $ 20 million versus the Trump HUD for grants to housing counseling agencies and fraud / fraud detection / prevention and training, and is asking for $ 61.4 million over the Trump HUD’s claim of 40.5 Million dollars. Both current and past administrations requested $ 4.5 million for administrative contact services, including funding for HECM tools for housing counselors.
In addition to the full application in the Housing Advice Bureau, there is a $ 20 million application for a new legal assistance grant program that aims to provide outreach and support to eligible low-income tenants in historically underserved populations facing eviction proceedings , which stem primarily from housing, prioritize instability due to the effects of the pandemic.
HUD | CC0HUD Secretary Marcia Fudge
Some of the original relief measures put in place by the Trump administration were carried over to the Biden administration, including a renewed extension of foreclosure and eviction moratoriums and the ability to only conduct external appraisals. However, HUD Secretary Marcia Fudge described in a statement where the priorities of the HUD remain under her leadership and how the President’s budget proposal reinforces those priorities.
“With the FY22 budget, we are reversing decades of divestment and disregard for our country’s housing crisis and putting housing where it belongs – at the heart of our efforts to build a stronger, fairer America,” said HUD Secretary Marcia Fudge in a statement accompanying the publication of the budget proposal. “The household is sending a clear signal that HUD will no longer be on the sidelines as millions of Americans struggle with housing and remain excluded from the opportunities that a good home offers. The FY22 budget transforms and empowers HUD to lay the foundations for stronger, more equitable housing infrastructure, helping communities thrive, and giving everyone a fair chance to move forward. “
NBS measure already taken, maintenance problems
While the Trump administration tabled a bill last year to address issues related to HECM non-borrowing spouses (NBS) scenarios, the Biden HUD has already taken its own steps, independent of the legislative process, to address this issue.
A few weeks ago, the FHA announced four primary new protections for eligible NBS in a reverse mortgage transaction, including expanding the criteria starting a grace period for HECM loans with case numbers assigned on or after August 4, 2014, including for a scenario where the primary borrower resides in a healthcare facility for more than 12 consecutive months but the NBS has stayed at home. Separate safeguards have also been introduced for HECMs with case numbers assigned before August 4, 2014, including new due and payment criteria.
The new NBS regulations have been broadly welcomed by members of the HECM service industry including representatives from Celink and Reverse Mortgage Solutions (RMS) as well as the National Reverse Mortgage Lenders Association (NRMLA) based on the reach of RMD.
The FHA’s HECM service has long been a contentious issue in debates arising from the health of the reverse mortgage program within the MMI fund. In an interview with RMD earlier this year, former HUD Assistant Secretary Brian Montgomery described the need to address HECM maintenance issues.
“[I]It’s no secret that the industry and the FHA always have to work together on a wide variety of issues, including reducing the cost of maintaining the assigned portfolio or constantly looking for ways to improve the property disposition process, ”Montgomery told RMD in February. “There is certainly an interest in the industry in allowing service providers to keep service at the 98% threshold, and I can understand their point of view.”
Earlier this year, the NRMLA submitted HECM servicing comments to the HUD, and HUD also previously revised the single-family mortgage maintenance and loss limitation guidelines on both the front and back of the business, including codifying new ones reverse mortgage policies, as well as the total or partial waiver of certain mortgage letters (MLs) that apply to the HECM program.