Reverse Mortgage Stabilization Act of 2013
In June, the House of Representatives passed H.R. 2167, the Reverse Mortgage Stabilization Act of 2013. First introduced in May by Representative Danny Heck (D-WA), this legislation seeks to amend the National Housing Act with additional safety requirements for the equity conversion mortgage insurance program. Under H.R. 2167, the Secretary of HUD would be authorized to make administrative and policy changes to the FHA’s Home Equity Conversion Mortgage Program (also known as a reverse mortgage) through a mortgagee letter instead of the standard regulatory reform process, which can last as long as 36 months. The FHA can use this new authority only when immediate changes are necessary to improve the fiscal safety of the program.
During a floor debate of the bill, Rep. Danny Heck outlined some of the potential reforms that would likely be adopted through a mortgagee letter at the FHA, such as more rigorous financial assessment of borrowers. According to Heck, a stronger assessment would ensure that a certain financial product is suitable for the borrower. He cited the Department of Veterans Affairs’ (VA) technique of using financial assessments when it underwrites reverse mortgages, and how this contributes to zero reverse mortgage problems for the VA. While NAHMA does not typically focus its attention on single-family housing issues, this bill is important to note because it displays the ongoing attempts to reform the FHA.
The bill’s co-sponsor, Rep. Michael Fitzpatrick (R-PA), stated during the floor debate that this bill would ensure that reverse mortgages remain an option for seniors and that an appropriate reverse mortgage can help seniors pay off debts, deal with unexpected expenses, and live a better quality of life. He further suggested that a more fiscally sound Home Equity Conversion Mortgage program would protect taxpayers.
Rep. Jeb Hensarling (R-TX) was also in support of the bill; he said that the FHA, in its current form, is a barrier to a fully sustainable and competitive housing finance system and that the FHA is “bailout broke”. He continued by citing an independent actuarial study of the FHA’s Home Equity Conversion Mortgage program which showed that the economic value of the program is negative $2.8 billion. Overall, Hensarling believes that H.R. 2167 is “a modest step in stemming substantial losses from the FHA” and that the authority granted to the Secretary of HUD will allow the agency to address serious flaws within the Home Equity Conversion Mortgage program.
The bill was passed with a voice vote. It has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.
To read the text of H.R. 2167,
please click here.
Hearing Focuses on closing Fannie Mae and Freddie Mac and Reforming the FHA
On Thursday, July 18, the House Financial Services Committee conducted a hearing on “A Legislative Proposal to Protect American Taxpayers and Homeowners by Creating a Sustainable Housing Finance System”. The content of the hearing centered on the Protecting American Taxpayers and Homeowners (PATH) Act, which seeks to:
- End the bailout of Freddie Mac and Fannie Mae;
- Decrease the market share of the Federal Housing Administration (FHA);
- Implement market reforms that will increase mortgage competition and maximize consumer choice; and
- Introduce more private investment capital into the mortgage market;
Two separate panels containing a total of 11 witnesses were questioned; the witnesses ranged from the executive directors and CEOs of banking associations, to housing finance professionals. Most of the witnesses supported the PATH Act, with a few witnesses opposing the act and the high expectations that legislators are placing on its passage. There was broad agreement that the government and private sector should share insurance backstops for mortgages so that taxpayers are not exclusively on the hook, such as in the bailouts of Freddie and Fannie.
The PATH Act’s reforms to the FHA are numerous and would ultimately reduce the size of the administration. To begin, the act seeks to “target” the FHA’s mission to specifically assist first-time borrowers, and especially those that have moderate or low-income (individuals below 115% of AMI nationwide). The maximum insurable loan limit would be lowered with a ceiling capped at $625,000 and a nationwide floor of $200,000. Minimum down payments would increase to 5 percent for all non-first-time borrowers, and the FHA would have to price its coverage like a private insurer with minimum annual premiums on all loans. Much of the FHA reform language is focused on the single-family housing market, but the changes would also affect the multifamily industry as well. According to the executive summary of the PATH Act, FHA multifamily properties would be targeted to low-income individuals by using occupancy and rent limitations for multifamily mortgage insurance.
Under this act, the FHA would spin off from HUD and it would become its own free-standing agency, with full self-sufficiency requirements in its operations. The minimizing of the FHA would require the administration to raise guarantee fees, engage in risk-sharing with private investors, and steadily reduce the size of retained portfolios. Federal policy would also coordinate the operations of the FHA and the Rural Housing Service so that the two agencies would share technology and risk management.
For affordable housing, the PATH Act would repeal the GSE’s mandatory affordable housing goals and the GSE-funded Housing Trust Fund. The witness Mark Zandi (the chief economist at Moody’s Analytics) was critical of this proposal, stating in his written testimony that this action would eliminate assistance given to disadvantaged groups.
Unfortunately, much of the debate in Thursday’s hearing was placed on the 30-year fixed mortgage and affordable housing was only mentioned in passing. The witnesses’ written testimony also mainly focused on the single-family market. Some witnesses countered that the policies may limit the access to affordable housing in high density areas.
The transition period would occur slowly. The bill would establish the structure, terms, powers, and duties of the independent FHA’s Board of Directors, which would consist of 9 members, including the Secretary HUD (as the chair), the Secretary of Agriculture, 5 individuals with expertise in mortgage finance and 2 individuals with expertise in affordable Housing. The Secretary of HUD would establish an advisory board during the transition period to provide advice to the new Board of Directors of the FHA regarding establishing and organizing the FHA, and creating the business plan, premium structure, and product lines of the FHA. This advisory board would also contain two individuals with affordable housing expertise.
Several pieces of legislation have been introduced that focus on FHA reform, and many Republicans are eager to reduce the federal government’s role in housing finance. However, bills like the PATH Act are not seen as bi-partisan by the Democrats, and while the bill could pass in the House of Representatives, passage of the bill in its current form is unlikely to happen in the Senate. This latest hearing is one of many in both the House and the Senate, and the FHA reform issue seems to be picking up more attention.
Early in June, the Office of the FHA Commissioner notified Congress that the FHA has committed 75% of its FY 2013 commitment authority. It is the FHA’s belief that without additional Congressional action, the administration will use-up the remaining commitment authority by mid-August. The FHA is still requesting an additional $5 billion in the commitment authority to ensure projected requests are met through the end of FY 2013; this additional $5 billion would raise the FY 2013 total commitment authority to $30 billion.
To read the testimony and view an archived webcast from the hearing,
please visit this page.
Bill to Exempt Public and Indian Housing Programs from Sequestration
On Tuesday, July 16, Representative Hakeem Jeffries (D-NY) introduced the bill H.R. 2695, the American Public Housing Act of 2013. H.R. 2695 would amend the Balanced Budget and Emergency Deficit Control Act of 1985 to exempt public and Indian housing programs from sequestration. The accounts that would be exempt include several critical affordable housing programs:
- Choice Neighborhoods Initiative
- Indian Housing Loan Guarantee Fund Program Account
- Native American Housing Block Grants
- Native Hawaiian Housing Block Grant
- Project-Based Rental Assistance
- Public Housing Capital Fund
- Public Housing Operating Fund
- Tenant-Based Rental Assistance
The bill has so far gained 24 co-sponsors and has been referred to the House Committee on the Budget. Similar bills to amend sequestration cuts for specific programs have been submitted, but mainly they have stalled in the House (exceptions being Air Traffic Controllers and FDA food inspections). It is likely that this bill will not advance past the Budget Committee. Rep. Jeffries has been committed to affordable housing programs and he pledges on his website to fight to protect and preserve Section 8 Housing Programs.
Current Bill Seeks to Reduce Federal Employee Travel
On June 10, Representative Michael Fitzpatrick (R-PA) introduced H.R. 2643, the Stay in Place, Cut the Waste Act of 2013. This bill would force federal agencies to cut their travel budgets in half over the next four years, including for industry conferences, and it would promote the use of video conferencing for staff training and routine meetings. This 50 percent reduction is a major increase over the Office of Management and the Budget’s (OMB) 2012 instructions for federal agencies to reduce travel expenses by 30 percent.
The catalyst for travel expense reform occurred after the infamous GSA Las Vega conference in 2010 in which considerable amounts of taxpayer dollars were spent on frivolous activities. The debate has gained more exposure as a recent government hearing showed that the IRS too was wasting funds in travel expenses.
NAHMA recognizes that waste can occur with travel expenses, but we oppose any legislation that would prevent federal employees from attending and participating in industry conferences. The advocacy process works best with face-to-face interaction between federal agency employees and the public. The hard work of every association would be compromised if federal employees were barred from attending conferences.
