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OVERSIGHT OF THE FEDERAL HOUSING 

ADMINISTRATION’S REVERSE MORTGAGE 

PROGRAM FOR SENIORS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INSURANCE, HOUSING AND 

COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MAY 9, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–123 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY

JUDY BIGGERT, Illinois, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

PATRICK T. MCHENRY, North Carolina 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT J. DOLD, Illinois 

STEVE STIVERS, Ohio 

LUIS V. GUTIERREZ, Illinois, Ranking 

Member 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 9, 2012 ....................................................................................................... 1 

Appendix: 

May 9, 2012 ....................................................................................................... 31 

WITNESSES 

WEDNESDAY, MAY 9, 2012 

Bell, Peter H., President and Chief Executive Officer, National Reverse Mortgage Lenders Association (NRMLA) ................................................................... 6 

Coulter, Charles, Deputy Assistant Secretary for Single Family Housing, U.S. 

Department of Housing and Urban Development ............................................. 5 

Fenton, Daniel, Senior Housing Director, Money Management International, 

Inc. (MMI) ............................................................................................................. 8 

Lewis, Jeffrey M., Chairman and Chief Executive Officer, Generation Mortgage ....................................................................................................................... 10 

Sanders, Anthony B., Distinguished Professor of Real Estate Finance, George 

Mason University, and Senior Scholar, Mercatus Center at George Mason 

University ............................................................................................................. 12 

Shadab, Houman B., Associate Professor of Law, New York Law School .......... 14 

Stucki, Barbara, Ph.D., Vice President, Home Equity Initiatives, National 

Council on Aging (NCOA) .................................................................................... 16 

Trawinski, Lori A., Ph.D., Senior Strategic Policy Advisor, AARP Public Policy 

Institute ................................................................................................................ 17 

APPENDIX 

Prepared statements: 

Bell, Peter H. .................................................................................................... 32 

Coulter, Charles ................................................................................................ 45 

Fenton, Daniel .................................................................................................. 55 

Lewis, Jeffrey M. .............................................................................................. 63 

Sanders, Anthony B. ........................................................................................ 76 

Shadab, Houman B. ......................................................................................... 85 

Stucki, Barbara ................................................................................................. 92 

Trawinski, Lori A. ............................................................................................ 99 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

April 2012 study by the Center for Retirement Research at Boston College entitled, ‘‘How Important is Asset Allocation to Financial Security 

in Retirement?’’ ............................................................................................. 107 

Letter to Congressman Gary Miller from Wendy Bucknum, Governmental 

& Public Affairs Manager, Laguna Woods Village, dated May 7, 2012 ... 135 

Study entitled, ‘‘Reversing the Conventional Wisdom: Using Home Equity 

to Supplement Retirement Income’’ by Barry H. Sacks, J.D., Ph.D., 

and Stephen R. Sacks, Ph.D. ....................................................................... 137 

(1) 

OVERSIGHT OF THE FEDERAL HOUSING 

ADMINISTRATION’S REVERSE 

MORTGAGE PROGRAM FOR SENIORS 

Wednesday, May 9, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INSURANCE, HOUSING

AND COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2 p.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. 

Members present: Representatives Biggert, Hurt, Dold, Stivers; 

Gutierrez, Sherman, and Capuano. 

Chairwoman BIGGERT. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order. 

Good afternoon, everyone. I am glad to see all of the witnesses 

here. We have quite a distinguished panel here. 

And let me just say, without objection, all Members’ opening 

statements will be made a part of the record, and I am going to 

recognize myself for an opening statement. 

I would like to welcome our panel of witnesses today for the 

hearing entitled, ‘‘Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors.’’ 

During the 112th Congress, this subcommittee has been systematically reviewing the Federal Housing Administration, or FHA, in 

today’s mortgage financial, market. We also have examined ways 

to reduce the government’s role and increase private sector participation in mortgage finance. 

Today, we will continue our work with an examination of FHA’s 

Home Equity Conversion Mortgage Program, or HECM. This program offers seniors a 100 percent government-backed reverse mortgage product. 

For some seniors, reverse mortgages are a great financial tool 

that will allow them to convert the equity in their home into cash 

for a variety of uses. That said, reverse mortgages are not for everyone. That is why seniors are required to secure housing counseling prior to obtaining a reverse mortgage. 

In recent years, more seniors, particularly baby boomers, have 

used the program to turn the equity they have in their home into 

income. The HECM program also has seen an increase in delinquencies and claims which have consistently exceeded the FHA’s 

original projections. 

2 

Today, we will hear from witnesses about the strengths and 

weaknesses of this government program as well as reverse mortgage products, and we will address a number of questions including: Is the private sector willing to offer seniors a reverse mortgage 

product without a government guarantee? Are the FHA’s underwriting standards, premiums, and rates sufficient to ensure the solvency and sustainability of the HECM program for seniors and taxpayers alike? Finally, should Congress or HUD make any statutory 

or regulatory changes to this program? 

As the saying goes, there is always room for improvement; and 

I am eager to hear if there are recommendations that we can act 

on to better serve those seeking financial security in their golden 

years. I look forward to an informative discussion, and I welcome 

our witnesses. 

And, with that, I will turn things over to our ranking member, 

Mr. Gutierrez. 

Mr. GUTIERREZ. Thank you, Madam Chairwoman. 

I am very pleased that we are here today to discuss the Federal 

Housing Administration’s Home Equity Conversion Mortgage Program. Reverse mortgages can be a critical tool for seniors to help 

pay off debt or simply ease the strains of monthly expenses. That 

being said, seniors have long been a population that is targeted by 

fraudsters, and strong consumer protections are essential to the 

success of this product. 

When I see famous celebrities on TV acting as spokespersons for 

reverse mortgages, I can’t help but wonder how many seniors are 

misled into believing that this product is appropriate for them 

when it may not be at all or it may create financial problems instead of solving them. How many seniors who see these commercials and like the celebrity spokesperson know enough about reverse mortgages to be able to make an informed decision about 

what is a very complex product? 

This is one of the many reasons that I believe improving the reverse mortgage counseling protocol was an important and very 

positive development. Seniors are now required to participate in a 

counseling session and obtain counseling certificates before they 

can secure a reverse mortgage. HUD has required that, in these 

sessions, the seniors’ financial needs and obligations are assessed 

and ultimate options are evaluated to see if a reverse mortgage is 

right for them. 

In addition, if the seniors are below 200 percent of the Federal 

poverty level, the counselor will also conduct a review to determine 

if they are eligible for any benefits that they are not currently accessing to ease their financial strain. 

It has been suggested that the consistency of reverse mortgage 

counseling can be improved by requiring face-to-face counseling. 

While I am concerned that this might not be possible given the current number of counselors, I am looking forward to discussing this 

issue further. 

I am looking forward to hearing about the steps that HUD has 

taken to reduce the risk to the program. This includes foreclosure 

mitigation counseling and requiring that lenders notify HUD of 

property tax and insurance default. 

3 

As baby boomers reach the age of eligibility for a reverse mortgage, it is critical that the program has stronger consumer protection and remains financially sound. 

I thank you, Madam Chairwoman, and I yield back the balance 

of my time. 

Chairwoman BIGGERT. Thank you, Mr. Gutierrez. 

Now, I will recognize Mr. Hurt, our vice chairman, for 11⁄2 minutes. 

Mr. HURT. Thank you. 

I would like to add my welcome to the witnesses today as you 

all help us understand this important issue a little better. 

I want to also thank the Chair for yielding and for holding this 

important hearing today. I want to commend the chairwoman for 

her continued commitment to conducting extensive oversight of the 

programs within our jurisdiction. 

My constituents in Virginia’s Fifth District understand how critical oversight is to effective stewardship of precious taxpayer resources. 

Today’s oversight hearing focuses on the FHA’s Home Equity 

Conversion Mortgage Program, which backs loans to seniors commonly known as reverse mortgages. Financial security during one’s 

retirement years is of critical importance to all Americans, and we 

must encourage people to plan and save for their retirement. For 

some seniors, reliance upon the equity in one’s home is a potentially viable option for ensuring financial stability as they grow 

older. That said, we must be mindful of the risks which taxpayers 

and seniors are exposed to by the reverse mortgage program and 

the FHA’s overall portfolio. 

This subcommittee has conducted substantial oversight of FHA’s 

financial stability over the last year-and-a-half, finding that its outsized role in the mortgage market has placed it on precarious footing. Similarly, the overwhelming majority of reverse mortgages are 

guaranteed by FHA at present. Given these trends, we must carefully consider the extent to which the Federal Government should 

be involved in this market. We must also ensure that the program 

is efficiently and effectively administered so it is capable of dealing 

with adverse challenges and conditions like declining home values 

and longer life spans, without creating losses for the taxpayers or 

for our seniors. 

And I hope our witnesses can express their views about how private capital can return to the reverse mortgage marketplace, which 

will reduce taxpayers’ exposure to that risk. 

Again, I want to thank the chairwoman for holding this hearing 

today, and I look forward to the witnesses. And I yield back my 

time. 

Chairwoman BIGGERT. The gentleman from Illinois, Mr. Dold, is 

recognized for 2 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. 

I want to thank you all for taking your time to be with us today. 

I am confident that both the Democrats and the Republicans 

share fundamental objectives that relate to this hearing. First, we 

need to create a legal and regulatory framework that promotes financial security and financial independence for our seniors. Second, 

our most vulnerable seniors should have significant or sufficient reVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
4 

sources to retire and age in a dignified way with adequate living 

accommodations. Third, in these very challenging fiscal circumstances, we need to reduce government spending and diminish 

taxpayer risk wherever possible without compromising our fundamental values. And, finally, we need to promote the private sector’s 

return to the market as our primary mortgage financing vehicle. 

As we consider strategies for achieving those common fundamental objectives, we must recognize that we are faced with certain 

challenging environmental realities. Our fiscal environment includes multiple and ongoing trillion dollar deficits with an 

unsustainable national debt. We have a challenging economic and 

job creation environment, along with a challenging housing market 

and mortgage finance market, and we also have a rapidly aging 

population, with tens of millions of baby boomers retiring over the 

next 15 years while 401(k) plans have been significantly diminished and pension plans have become increasingly unavailable. 

Within that contextual framework, the ultimate question is, how 

can the reverse mortgage help us achieve our fundamental objectives while also accounting for the challenging environmental realities that we are facing. 

Essentially, reverse mortgages seem to be a largely private sector 

solution that is uniquely situated to help seniors use their own resources to establish and maintain financial independence and security. And while I know many of us in Congress and many taxpayers 

are deeply troubled by the GSE bailouts, I don’t think that this situation is a zero-sum tradeoff between an FHA guarantee with 

some inevitable default costs and eliminating the guarantee and 

having no costs. 

If we prematurely eliminate the guarantee, I think we can safely 

assume that many seniors who would have otherwise remained financially independent would need to resort to government assistance and significantly diminished living standards. 

So we have costs either way, and the question becomes, how do 

we improve the reverse mortgage regulatory framework with the 

objective of constantly increasing the private sector’s role while diminishing the taxpayers’ role? 

I want to thank the witnesses for being here today, and I want 

to thank the Chair for the time. 

Chairwoman BIGGERT. With that, I would like to recognize that 

we have some members of the Parliament of Moldova sitting over 

here. Please stand. They are our counterparts in the financial services in the Parliament of Moldova. Thank you so much for being 

here. 

I would now like to introduce our witnesses: Mr. Charles Coulter, 

Deputy Assistant Secretary for Single Family Housing, U.S. Department of Housing and Urban Development; Mr. Peter Bell, 

president and chief executive officer, the National Reverse Mortgage Lenders Association; Mr. Daniel Fenton, housing director, 

Money Management International, Inc.; Mr. Jeffrey M. Lewis, chief 

executive officer and chairman, Generation Mortgage; Dr. Anthony 

Sanders, distinguished professor of real estate finance, George 

Mason University, and senior scholar, Mercatus Center at George 

Mason University; Professor Houman Shadab, associate professor 

of law, New York Law School; Dr. Barbara Stucki, vice president, 

5 

Home Equity Initiatives, National Council on Aging; and Dr. Lori 

Trawinski, senior strategic policy advisor, AARP Policy Public Institute. 

Now, you have heard the bells go off, and you will see up here 

that we are now having votes on the Floor, which happens in the 

afternoon sometimes. And we have to attend to those pesky votes. 

So, we are going to recess for a few minutes. We only have two 

votes. We will be back as soon as we can. It shouldn’t be very long, 

and then we will start with your testimony. Thank you. 

[recess] 

Chairwoman BIGGERT. Thank you for being here. It seems like 

you have a little more room. Everybody was really sitting shoulder 

to shoulder there for a while. 

I would ask unanimous consent that the following materials be 

inserted in the hearing record: one, an April 2012 Center for Retirement Research at Boston College study entitled, ‘‘How Important is Asset Allocation to Financial Security in Retirement?’’; two, 

an April 2012 study entitled, ‘‘Reversing the Conditional Wisdom: 

Using Home Equities to Supplement Retirement Income’’; and 

three, a letter dated May 7, 2012, to Congressman Miller from the 

Community Associations Institute. 

Without objection, it is so ordered. 

We will now hear from our panel. 

The witnesses’ written statements will be made a part of the 

record, and you will each be recognized for a 5-minute summary of 

your testimony. 

With that, we will recognize Mr. Coulter for 5 minutes. 

STATEMENT OF CHARLES COULTER, DEPUTY ASSISTANT SECRETARY FOR SINGLE FAMILY HOUSING, U.S. DEPARTMENT 

OF HOUSING AND URBAN DEVELOPMENT 

Mr. COULTER. Thank you. Chairwoman Biggert and members of 

the subcommittee, thank you for the opportunity to testify today regarding FHA’s Home Equity Conversion Mortgage, or HECM program. The Housing and Community Development Act of 1987 authorized HUD to conduct a demonstration of HECM loans, and the 

program became a permanent FHA insurance program in Fiscal 

Year 1998. The HECM is a government-insured reverse mortgage 

which enables seniors ages 62 and older to convert a portion of the 

equity in their homes into cash. The proceeds of the loans can be 

used for a variety of needs faced by seniors, including healthcare 

costs, subsistence income, and other such needs. 

Since the establishment of the program, HUD has endorsed approximately 750,000 HECM loans. The HECM program includes 

statutory consumer protections to protect homeowners, including 

mandatory counseling to ensure that the applicant understands the 

HECM product and to determine whether less costly alternatives 

are available; a guarantee of timely cash advances to borrowers in 

case their lenders cannot make the payments to them, caps on fees, 

anti-churning disclosures to ensure that borrowers are not induced 

to refinance without benefits or solely for the benefit of lenders; 

and a prohibition on cross-selling HECMs and annuities by anyone 

who participates in the origination or counseling for a HECM. 

6 

To protect borrowers, as with its forward mortgage programs, 

HUD has established servicing guidelines for HECMs, including a 

requirement that borrowers be offered loss mitigation alternatives. 

If an HECM borrower is unable to retain their home, options are 

available to avoid foreclosure. 

The mandatory counseling requirement is perhaps the most important consumer feature of the HECM program. This safeguard is 

especially important because counseling assists the borrower in understanding the HECM loan product, and provides in-depth information to help seniors make informed decisions. Counseling is provided by certified HECM counselors at HUD-approved counseling 

agencies. 

In the past few years, FHA has made a number of improvements 

to the program. First, to help diversify and strengthen the HECM 

portfolio. In Fiscal Year 2011, HUD created a new HECM product, 

the HECM Saver. HECM Saver is a lower-cost loan option for borrowers who may not require as much equity coming out of their 

home. This product is an important complement to the HECM 

standard option, and permits borrowers to choose the HECM product that best meets their particular needs. 

Another improvement to the program that has contributed to the 

value of the HECM portfolio was the imposition of new controls on 

the potential claim costs of tax and insurance arrears. HUD’s regulations require an HECM borrower to maintain hazard insurance 

on the mortgaged property and to pay all pertinent property 

charges, such as local real estate taxes, in a timely manner. Failure 

to make those payments puts the loan in default. This guidance instituted controls for the level to which those arrears may grow before the loan must be declared due and payable. 

Madam Chairwoman, in the more than 3 decades since its creation, the HECM program has allowed approximately three-quarters of a million senior citizens to age in place and meet their 

healthcare, subsistence, and other needs. And thanks to the work 

this Administration has done to strengthen and improve this program, FHA’s independent actuaries have stated that the program 

is actuarially sound. 

The HECM program is giving senior citizens who have worked 

hard to achieve the American dream the opportunity to live their 

remaining years with dignity and confidence. Thank you, and I 

would be happy to answer any questions you may have. 

[The prepared statement of Mr. Coulter can be found on page 45 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Coulter. 

Mr. Bell, you are recognized for 5 minutes. 

STATEMENT OF PETER H. BELL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL REVERSE MORTGAGE LENDERS 

ASSOCIATION (NRMLA) 

Mr. BELL. Thank you. Madam Chairwoman and members of the 

subcommittee, thank you for convening this hearing on FHA’s 

HECM program and its role in helping fund longevity. This subcommittee has been sensitive to reverse mortgage issues and has 

continually taken steps to improve the program. For that, we are 

7 

appreciative, as are the three-quarters of a million households that 

have used HECMs. 

Presently, there are 578,000 senior households with these loans, and $11.8 billion was made available through loans endorsed under 

the program in Fiscal Year 2011, an amount that stimulates consumer spending. HECM helps individuals address a key challenge—how to finance longevity. With life carrying on for decades 

beyond our earning years, we must manage assets and resources 

to sustain ourselves longer. The equity in a home is often the largest component of personal wealth. Congress recognized this when 

enacting the HECM program in 1987 in a bill signed into law by 

President Reagan. My written statement presents the history of reverse mortgages in the United States, as well as the legislative history of HECM. I will leave that to be read, rather than use my limited time here on that. 

The HECM statute strikes a balance by assuring the industry 

the ability to offer reverse mortgages in exchange for agreeing to 

consumer fairness and fiscal soundness. A thoughtful and responsible partnership of stakeholders, including Congress, HUD, senior 

advocates, housing counselors, and the lending industry, has 

worked together to keep this program true to its objectives. Over 

the years, Congress has amended the HECM statute nine times, 

sometimes to clarify wording, other times to alter substance. The 

program has resulted in the development of an important financial 

management tool that we are able to offer because of the sharing 

of risk between the public and private sectors. 

Reports by HUD and AARP, as well as our own research, have 

shown strong consumer satisfaction among those who have taken 

out these loans. Initially created to help supplement retirement income, use of the loan has evolved to help in a number of different 

circumstances. HECMs are used to pay off mortgages and debts, 

enabling borrowers to eliminate monthly payments and deploy 

their regular cash flow for day-to-day living expenses. In other 

cases, HECMs are used to cover costs for in-home care, allowing 

borrowers to avoid a costly stay in a nursing home. 

With the introduction of the HECM Saver, which provides lower 

costs to consumers and lower risk to FHA, the program has drawn 

interest from financial planners. Many retirees experience peaks 

and troughs in their cash needs. As a result, they are often forced 

to liquidate assets at inopportune times, selling stocks into a down 

market or cashing in certificates of deposit before maturity. A 

HECM Saver can provide cash for immediate needs and then be repaid when investment returns are higher. The net result, according 

to models run by leading financial planners, is that the client will 

have a larger amount of money available to meet their funding 

needs throughout their retirement. 

There are several issues that need to be addressed on the HECM 

program. First and foremost is the authorization cap. The program 

was made permanent in 1998, but there has been a statutory limit 

on the number of loans FHA can insure. Although the cap has been 

routinely raised or suspended, its existence deters some industry 

participants. NRMLA urges this subcommittee to support permanently removing the cap to minimize any possible disruption of 

HECM. The review undertaken annually in the budget process proVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
8 

vides the opportunity to monitor program performance. There are 

also opportunities for review whenever this subcommittee or the 

full Financial Services Committee conducts its periodic and helpful 

oversight of the program, or of FHA generally. 

The next issue is a Qualified Mortgage. This is a concept that 

has emerged in the Dodd-Frank Act to identify characteristics of 

mortgages that may be originated and sold into the secondary market without a risk retention requirement. The Consumer Financial 

Protection Bureau is promulgating rules on this concept. We are requesting they create a definition of ‘‘Qualified Mortgage’’ specifically for reverse mortgages so they may qualify for an exemption 

from risk retention. This will help bring back a proprietary reverse 

mortgage market, taking some of the burden off of FHA in serving 

seniors’ needs. It is healthy for the reverse mortgage industry to 

be able to offer a range of products, including proprietary reverse 

mortgages, in addition to FHA-insured HECMs. 

I had other issues to get to here, but I see my clock is running 

out, so I will refer you to the written testimony for those, and, in 

conclusion, basically state that HECM has been a useful tool helping hundreds of thousands of seniors maintain their homes and 

lead more financially stable lives. The program has been administered thoughtfully, carefully, and responsibly by a partnership of 

stakeholders. This has allowed the reverse mortgage concept to 

gain a foothold and prove the value of this important personal financial management tool as a component of retirement finance and 

funding longevity. We thank members of the subcommittee for your 

interest in this program, and hope that we can count upon Congress to demonstrate its support by further suspending, or preferably removing, the cap on the number of mortgages FHA can insure. Thank you for the opportunity to appear here today. 

[The prepared statement of Mr. Bell can be found on page 32 of 

the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Bell. 

Mr. Fenton, you are recognized for 5 minutes. 

STATEMENT OF DANIEL FENTON, SENIOR HOUSING DIRECTOR, MONEY MANAGEMENT INTERNATIONAL, INC. (MMI) 

Mr. FENTON. Thank you. Chairwoman Biggert, Ranking Member 

Gutierrez, and members of the subcommittee, my name is Daniel 

Fenton, and I am senior housing director for Money Management 

International, or MMI. MMI is a nonprofit HUD-approved housing 

counseling agency, providing a range of financial counseling services including foreclosure prevention, and reverse mortgage counseling by telephone and in person in more than 100 branch offices 

nationwide. We are the largest reverse mortgage counseling agency 

in the country, with more than 100 certified counselors, accounting 

for approximately 10 percent of all HUD-certified reverse mortgage 

counselors. 

Thank you for the opportunity to share the perspective of counselors who, on a daily basis, provide education and resources to 

seniors considering the use of a reverse mortgage. 

Also, I would like to thank you, Chairwoman Biggert, for your 

work in founding the Financial and Economic Literacy Caucus, and 

your work in establishing the Office of Housing Counseling at 

9 

HUD. We in the housing counseling and financial literacy community really appreciate your support of our work. 

In our experience, seniors choose reverse mortgages for a variety 

of reasons. However, the majority do so to better handle their dayto-day expenses and continue living independently in their own 

homes for as long as is practically possible. While it is extremely 

helpful to many seniors, a reverse mortgage is a complex loan, and 

details of exactly how it works are generally not well understood. 

It is essential that seniors have a thorough understanding of reverse mortgages before taking out a loan to avoid pitfalls described 

in my written testimony. Congress and FHA sought to ensure that 

seniors avoid such pitfalls by requiring that all borrowers participate in a counseling session with a HUD-approved agency counselor before making a loan application. The counselor’s role is not 

to encourage or discourage the use of a reverse mortgage, but to 

ensure that seniors considering doing so are able to make an informed choice for themselves. MMI’s counseling process typically 

takes about 2 hours. It includes the development of personalized 

loan example documents, general education on reverse mortgages 

and their alternatives, the creation of an individualized budget, 

and a welfare-benefits analysis relating to the client’s individual 

circumstances. 

In the last 3 years, HUD has strengthened the effectiveness of 

the counseling program nationwide, with a major overhaul of counseling standards. Major enhancements include a mandatory exambased certification for all counselors, and a mandated use of a 

standardized test of understanding designed to ensure that all borrowers demonstrate a basic understanding of how a reverse mortgage works. 

However, while HUD has developed a robust consumer protection process, Congress has inadvertently created a counseling-funding model that actually undermines counselors’ ability to meet seniors’ needs. We are very grateful for HUD’s reverse mortgage counseling grant funding; however, it does not nearly cover the cost of 

counseling services provided nationwide. We believe that the cost 

of consumer protection should not be the exclusive responsibility of 

government, and that both seniors receiving reverse mortgages and 

the reverse mortgage lending industry should help cover the cost 

of these efforts. 

Sadly, current legislation makes this impossible. In particular, 

language in the Housing and Economic Recovery Act of 2008, or 

HERA, specifically prohibits reverse mortgage lenders from funding 

reverse mortgage counseling. This was intended to avoid a conflict 

of interest. But in reality, it forces the cost of non-HUD-funded 

counseling sessions directly onto all clients seeking counseling. The 

problem with this is that prospective borrowers are usually seeking 

additional funds to help pay for living expenses, so an up-front fee 

for counseling prior to receiving loan proceeds is often a significant 

deterrent to seeking counseling at all. Counseling entities can 

eliminate the need for an up-front fee by charging a fee as part of 

closing costs, but this creates a situation where counseling organizations are paid on a per loan-closed basis, which is not ideal, as 

it makes the agencies dependent on loan volume for their financial 

survival. 

10 

To address this problem, we suggest amending HERA to allow 

for the establishment of a blind trust or funding pool to compensate 

counseling agencies on a per client-counseled basis, irrespective of 

whether their clients enter into a reverse mortgage. This could be 

funded by a standard closing cost levied on all reverse mortgages, 

coupled with contributions from the reverse mortgage industry and 

government as needed. If Congress allows the pooling of funds from 

lenders to support counseling, the potential conflict of interest is 

removed and counseling agencies can adapt to meet the capacity 

needs of this industry without relying solely on government funds 

to meet the needs of seniors. 

In closing, MMI believes that counseling is necessary to protect 

the interests of the seniors, as well as the financial integrity of the 

reverse mortgage program. We commend HUD for its efforts to 

strengthen counseling standards, and we urge action to improve 

counseling funding availability so that all seniors of every income 

level can receive the education they need as they evaluate their financial options. 

Thank you for this opportunity to present my testimony. I will 

be pleased to respond to any questions you may have. 

[The prepared statement of Mr. Fenton can be found on page 55 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Fenton. 

Mr. Lewis, you are recognized for 5 minutes. 

STATEMENT OF JEFFREY M. LEWIS, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, GENERATION MORTGAGE 

Mr. LEWIS. Thank you. I would like to thank you, Chairwoman 

Biggert, Congressman Gutierrez, and the other members of the 

subcommittee for holding this hearing on the HECM program and 

for inviting me to participate. I am the chairman and CEO of Atlanta-based Generation Mortgage, a mortgage banking firm originating and servicing reverse mortgages exclusively. 

I also serve as the chairman of the Coalition for Independent 

Seniors, which is a nonpartisan public policy coalition dedicated to 

preserving seniors’ financial independence. 

Chairwoman Biggert, you asked me to address several issues: the 

current state of the HECM program, its administration; the benefits to borrowers; the safety and soundness of the program; and to 

provide suggestions for regulatory and statutory changes. I will 

take each of these in turn. 

First, what is the current state of the program? Recently, 

MetLife announced their departure from the industry, making 

them the third major company to depart the business in the last 

15 months. RMS, Urban Financial, Generation Mortgage, One Reverse, and others, have stepped into the void to continue to make 

the product fully available across the country. 

To provide some perspective, I would note that from 1989 to 

2006, no major financial brands participated in the reverse mortgage industry, yet the marketplace grew steadily. None of the companies that departed expressed any concerns over the quality of the 

HECM product itself. 

A concern for those who left and a continued concern for those 

who remain is tax and insurance, or T and I defaults. The reverse 

11 

mortgage is not suitable for every borrower. The benefits of the 

product are not outweighed by the financial and psychological costs 

of a foreclosure. The industry is working with FHA, and expects 

fair and consistent guidelines in the coming months, that will allow 

the industry to identify unsuitable borrowers. 

In the future, we also expect to see program modifications, such 

as mandated escrow payments, that will protect both consumers 

and the FHA insurance fund. A cornerstone of consumer protection 

unique to the HECM remains mandatory counseling, which we 

strongly support. The new measures being taken on financial assessment, combined with the existing counseling requirements, will 

help ensure the program’s future integrity and sustainability. 

Declining home values have certainly had an impact on overall 

volume, which is currently running at about half of what it was 3 

years ago. With the changes being implemented, favorable demographic trends, and some stability in the housing market, the industry is well-positioned to reverse the down trend. 

FHA and Ginnie Mae have done a fine job administering and enabling the program to operate in a consumer-friendly and financially sound manner. Recently, we have seen an overhaul of both 

the counseling protocols and the servicing protocols for defaulted 

loans. Twice in the last 3 years, FHA has altered the economic 

terms of the HECM, reducing the principal limit factors, and increasing the mortgage insurance premiums charged on the product. 

We recognize that the product must support and sustain itself 

through the insurance premiums collected, and that these changes 

were a good and necessary response to changes in the housing market. 

The current version of the HECM standard, along with the new 

HECM Saver, will provide attractive options to the widest possible 

range of eligible borrowers. While the reverse mortgage is not for 

every borrower, for those seniors who do meet the criteria, the 

product can be life-transforming, especially if it is utilized as part 

of a comprehensive retirement plan. The product allows seniors to 

retire with dignity, security, comfort, and independence. 

I would like to briefly address the question of whether or not it 

is healthy for the government to be so dominant in this market. 

After all, the Federal Government currently insures more than 99 

percent of all new reverse mortgage originations. In the traditional 

mortgage space, the economic difference between a government 

loan and a jumbo is marginal. In the reverse mortgage space, the 

difference between a government loan and a private loan is immense. The difference is not a reflection of increased risk on the 

part of the government. Rather, it is a function of the fact that the 

government’s cost of capital is dramatically less than the private 

sector’s. 

FHA’s proactive changes to the program have put it on solid financial footing. We expect the program to stand on its own without 

subsidy. And if the housing market were to deteriorate meaningfully, we would expect FHA to act accordingly and increase the 

costs of the loan. At the same time, if the housing market improves, we would be delighted to see the terms of the loan improve 

as well. 

12 

You asked me to also suggest regulatory and statutory changes. 

On the regulatory front, the industry has been actively engaged 

with the new CFPB in their ongoing reverse mortgage study. We 

look forward to their findings and any changes they suggest that 

will truly protect consumers. 

As the only originator of jumbo reverse mortgages, Generation 

would enthusiastically support a definition of ‘‘Qualified Mortgage’’ 

that includes all reverse mortgages. This would increase the probability that our jumbo product could be distributed broadly to investors. 

There is one final issue I would like to touch on—comprehensive 

retirement planning. A provision in the 2008 Housing and Economic Recovery Act designed to protect consumers from the bundling of inappropriate financial products for the HECM has had the 

unintended consequence of limiting consumer choice. It might be 

prudent to examine ways to allow licensed and competent professionals to provide comprehensive planning, while continuing to protect consumers. Such a change would benefit consumers and also 

serve as an incentive for major companies to get back into the reverse mortgage space. 

Last month, the Center for Retirement Research at Boston College released a study on how important asset allocation is to financial security and retirement. The study concludes by noting that, 

‘‘Financial advisers would be of greater help to their clients if they 

focused on a broad array of tools, including working longer, controlling spending, and taking out a reverse mortgage.’’ 

Thank you for the opportunity to participate today, and I look 

forward to answering your questions. 

[The prepared statement of Mr. Lewis can be found on page 63 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Lewis. 

Dr. Sanders, you are recognized for 5 minutes. 

STATEMENT OF ANTHONY B. SANDERS, DISTINGUISHED PROFESSOR OF REAL ESTATE FINANCE, GEORGE MASON UNIVERSITY, AND SENIOR SCHOLAR, MERCATUS CENTER AT 

GEORGE MASON UNIVERSITY 

Mr. SANDERS. Chairwoman Biggert, Ranking Member Gutierrez, 

and members of the subcommittee, thank you for inviting me to 

testify today. My name is Anthony B. Sanders. I am a professor of 

finance at George Mason University in the school of management, 

and senior scholar at the Mercatus Center. I was previously director of asset-backed and mortgage-backed securities research at 

Deutsche Bank, and the author of ‘‘Securitization’’ with Andrew 

Davidson, as well as numerous economic and finance publications 

on housing and the housing finance system. 

The FHA, HUD, and the Federal Government face enormous 

challenges going forward. Federal debt held by the public is currently $10.9 trillion, and has increased by $6 trillion since January 

2007, and $4.6 trillion since President Obama took office on January 20, 2009. The Federal Government has been running, with the 

exception of 1 month, trillion-dollar deficits, and will continue to do 

so, which will result in even more Federal debt. Student loan debt 

13 

is over $1 trillion and growing, which is another federally-guaranteed program. 

On the housing front, Fannie Mae, Freddie Mac, and the FHA 

have captured the mortgage insurance industry with over a 90 percent share. Fannie and Freddie have cost taxpayers $170 billion 

and counting. And we do not know the final costs of the 14 loan 

modification programs of the Administration, including the Attorney General’s settlement. 

The Administration and Congress are pressuring FHA to allow 

Fannie and Freddie to perform principal writedowns, and the costs 

could be staggering. 

This brings us to the FHA. The FHA, according to Ed Pinto at 

the American Enterprise Institute, is deeply insolvent, with insufficient capital, although I know HUD does not agree with that sentiment. The FHA is estimated to have a current net worth of minus 

$12 billion, and an estimated capital shortfall between $31 billion 

and $50 billion. The good news is that the total delinquency rate 

in March declined to 15.78 percent, while the serious delinquency 

rate declined to 9.47 percent. The bad news is, today the FHA announced that 50 percent of their loan modifications have gone into 

redefault. 

Though the U.S. housing market and disarray in housing prices 

have continued to decline in many markets, the losses could mount 

for the FHA and American taxpayers even further. And with housing prices declining and the FHA continuing to insure and subsidize 3.5 percent down mortgages, the question remains as to why 

the Federal Government is guaranteeing and subsidizing reverse 

mortgages for seniors. Stated differently, why do taxpayers have to 

subsidize seniors who want to stay in their homes when the simple 

solution is to let seniors sell their home and either rent a dwelling 

or purchase a smaller dwelling that meets their needs when there 

is also the possibility of a private market without insurance for reverse mortgage? 

I am not against reverse mortgages as an equity extraction tool. 

In fact, I advised the Chancellor of the Exchequer in the United 

Kingdom about equity extraction tools over there for their retirees. 

But I do not see any reason for the Federal Government to guarantee and subsidize it. We need to stop micromanaging the homeownership decisions for American households. The Clinton Administration tried it in 1995 with the National Homeownership Strategy that took all the safeties off the housing finance system, and 

that contributed to the housing bubble and burst. Now Fannie, 

Freddie, and FHA are raising credit standards, encouraging those 

who can’t get credit to rent, creating a rental bubble. Residual residential rents are rising rapidly in urban areas. In other words, our 

policies just keep shifting bubbles from one sector to the other. 

At a minimum, the Federal Government should get out of the reverse mortgage insurance and subsidization business, or at least do 

some sort of loss-sharing agreement that is stronger than what it 

is now, which is one of the proposals for Fannie Mae and Freddie 

Mac going forward. We have thrown enormous subsidies at the 

housing market, have tried to steer households into ownership, 

then renting, now steering seniors toward equity extraction. We 

need to think about how much the housing market should be subVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
14 

sidized. Mortgage interest deductions, subsidized housing insurance, low-downpayment loans, clearly the massive subsidization 

has distorted housing and the housing finance market, and changes 

should be made. 

There are numerous proposals for ending the housing government monopoly, including eliminating Fannie and Freddie, converting them to a public utility and reinsurance company. But no 

matter how we deal with the government housing monopolies, we 

need to address how much we want to subsidize it. So, a reverse 

mortgage for seniors is a reasonable idea, but it should not be 

guaranteed by the Federal Government. It is an ownership decision, and the Federal Government should stop trying to micromanage this decision, particularly since there is an easy alternative: either private market reverse mortgages; or just selling 

their dwelling and moving into rental or a new home. 

Thank you very much for the opportunity to testify. 

[The prepared statement of Dr. Sanders can be found on page 76 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Dr. Sanders. 

Mr. Shadab, you are recognized for 5 minutes. 

STATEMENT OF HOUMAN B. SHADAB, ASSOCIATE PROFESSOR 

OF LAW, NEW YORK LAW SCHOOL 

Mr. SHADAB. Madam Chairwoman and members of the subcommittee, thank you for inviting me here to testify on the Federal 

Housing Administration’s HECM program for reverse mortgages. 

My name is Houman Shadab, and I am an associate professor of 

law at New York Law School. A significant portion of my research 

focuses on instruments that transfer credit risk, including mortgage-backed securities and credit default swaps. My testimony will 

focus on the financing of reverse mortgages, and not consumer protection issues. 

Based upon my research, I find that as housing prices stabilize 

and the broader economy recovers, a reverse mortgage market 

would likely be sustainable without FHA insurance. This is primarily because the securitization of conventional non-HECM reverse mortgages can likely take place on a large scale even without 

a government guarantee. 

By way of background, the Department of Housing and Urban 

Development is involved in the reverse mortgage market in two 

fundamental ways. At the loan level, FHA insures and regulates 

qualifying reverse mortgages under the HECM program. This insurance protects lenders against the risk that the value of the 

home will be less than what is owed when payment comes due. 

HECM loans currently comprise 95 percent of the market. As of 

year-end 2011, the estimated outstanding balance of all HECM 

loans was approximately $87 billion. 

HUD is also involved in reverse mortgage securitization through 

Ginnie Mae, which guarantees the principal and interest payments 

of HECM mortgage-backed securities. Through year-end 2011, a 

total of $27.7 billion in HECM mortgage-backed securities had been 

issued. 

Now, there are several reasons why a private reverse mortgage 

market could exist even without FHA insurance or Ginnie MaeVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
15 

sponsored securitization. First, prior to the financial crisis of 2008, 

conventional reverse mortgages were widely available, and the 

market was steadily growing. After peaking in 2007, about 16 percent of the volume of reverse mortgages were conventional loans. 

Lenders stopped making conventional reverse mortgages during 

the financial crises due to the economic shock that caused the secondary market to collapse. 

Second, the overall demand for reverse mortgages is likely to increase dramatically in the next several years due to an aging population, growing healthcare costs, and a lack of sufficient savings for 

retirement. Indeed, a 2009 estimate by Reverse Mortgage Insights 

found that only 2 percent of the potential reverse mortgage market 

was being served. 

As the demand for reverse mortgages grows, the demand for conventional reverse mortgages will grow as well. The small market 

share of conventional reverse mortgages is likely also due to their 

inability to compete with HECM loans. Indeed, Fannie Mae’s 2008 

decision to stop offering a conventional reverse mortgage product 

was due to Congress expanding the scope of the HECM program. 

Most importantly, a substantial market for private mortgage—reverse mortgage-backed securities without governmental guarantees 

likely to develop and support the growth of the conventional reverse mortgage market. Although private reverse mortgage 

securitization volumes have been modest, they have already taken 

place without any governmental guarantees. 

Indeed, the first securitization of reverse mortgages in 1999 was 

a private transaction. In 2005, Lehman Brothers privately 

securitized conventional reverse mortgages in a $503 million deal. 

In 2006 and 2007, $2.7 billion of private reverse mortgage-backed 

securities were issued. The private market thus seems to be have 

been growing when the financial crisis caused the market for all 

private securitizations to collapse. 

Putting things in perspective, we should keep in mind that there 

is currently a multibillion-dollar securitization market that operates without any governmental guarantees—2011 saw the issuance 

of $30 billion in private commercial mortgaged-backed securities, 

$12.3 billion of securities backed by commercial loans, and $60.2 

billion of securities backed by credit card receivables. 

Even in 2000, prior to the development of recent housing and 

securitization bubbles, $57.8 billion of private forward mortgagebacked securities were issued. This large, private securitization 

market reflects a strong appetite among investors for structured 

debt securities that do not have governmental guarantees. Over 

time, this appetite is likely to extend to reverse mortgage 

securitization as well. 

Importantly, private securitizations of commercial mortgages, 

credit cards, and loans began in the mid-1980s to early 1990s, and 

it took several years for those markets to mature and grow. By contrast, private securitizations of reverse mortgages were in their infancy before the financial crisis hit. Accordingly, Congress should 

not expand the HECM program. Instead, Congress should consider 

reducing FHA insurance for HECM loans, and also consider reducing the guarantee provided by Ginnie Mae for securities backed by 

HECMs. These reductions would likely not pose a long-term probVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
16 

lem for borrowers seeking reasonably priced reverse mortgages. As 

the private securitization market grows, the availability of lowercost conventional mortgages will grow as well. 

In addition, reducing the role of FHA and Ginnie Mae will help 

to ensure that taxpayer funds are not put at risk by being used to 

subsidize the activities of financial institutions. 

Thank you very much for the opportunity to share my views. I 

look forward to any questions you may have. 

[The prepared statement of Professor Shadab can be found on 

page 85 of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Shadab. 

Dr. Stucki, you are recognized for 5 minutes. 

STATEMENT OF BARBARA STUCKI, PH.D., VICE PRESIDENT, 

HOME EQUITY INITIATIVES NATIONAL COUNCIL ON AGING 

(NCOA) 

Ms. STUCKI. Chairwoman Biggert, Ranking Member Gutierrez, 

and esteemed members of the committee, on behalf of the National 

Council on Aging, I appreciate the opportunity to testify today. 

NCOA is a nonprofit service and advocacy organization whose mission is to improve the health and economic security of millions of 

older adults, especially those who are vulnerable and disadvantaged. I am here to talk about ways to sustain and improve the 

HECM program. My remarks are grounded in our research and our 

experience as a HUD-approved HECM counseling intermediary. 

There are three issues that I will discuss today. First, as you examine the HECM program, remember that it was designed for seniors with modest incomes, many of whom are underserved by the 

financial industry. We estimate that about 44 percent of reverse 

mortgage counseling clients have incomes under 200 percent of the 

Federal poverty level. As people live longer, they need to take more 

responsibility to safeguard their health and financial security. 

Home equity is becoming part of the solution due to the widespread 

inadequacy of retirement savings. As a result, the issue for many 

low- to moderate-income seniors today is not whether to tap this 

asset, but when and how. 

Older homeowners consider HECM loans for many reasons, including additional income to plan ahead for emergencies, and to 

pay for home repairs or improvements. These loans can also 

strengthen the capacity for independent living. Among counseling 

clients, about 46 percent are widowed or divorced; 12 percent have 

had a hospital or nursing home stay in the 6-month period before 

counseling. Almost 1 in 10 consider this loan to pay for out-of-pocket health expenses. 

A growing number of older homeowners will need guidance on reverse mortgages, so we urge you to adequately fund HECM counseling. Additional support for research, using data collected 

through the counseling process, will also help to strengthen consumer protections and reduce the risk of loan default. 

Second, keep in mind that reverse mortgage borrowers are at the 

leading edge of a new trend to use home equity. Several years ago, 

73 percent of borrowers took out this loan to improve their quality 

of life. Now, 67 percent of counseling clients want to lower debt. 

Seniors who take out a reverse mortgage when they face serious fiVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
17 

nancial difficulties are at a higher risk of defaulting. These findings 

suggest that the long-term sustainability of the HECM program 

rests on increasing the use of these loans as more than a tool for 

crisis management. As the baby-boomer generation ages, reverse 

mortgages may become part of retirement planning. The average 

age of HECM borrowers has declined from about 77 in 1990 down 

to 72 in 2012. About 1 in 5 counseling clients are baby boomers age 

62 to 64. Borrowers must meet their ongoing obligations, including 

paying property taxes and insurance. 

However, it will be important to ensure that HUD regulations, 

such as the financial assessments lenders may conduct at origination, do not become overly restrictive so that the HECM program 

remains a viable option for the cash-poor seniors for whom it was 

originally intended. 

Third, it is important to understand that the HECM program 

serves as an important platform for innovation. Over the past 10 

years, reverse mortgages have evolved as a product and as a financing solution. Declines in loan endorsements indicate that 

HECMs must continue to evolve. 

To meet these challenges, HUD should be encouraged to continue 

collaborative efforts with the mortgage industry, housing programs, 

and the aging services community. For example, efforts are under 

way to integrate HECM counseling with assistance from social 

service agencies to support borrowers in default. These efforts could 

be expanded to help those with chronic conditions to stay at home 

and avoid the need to rely on Medicaid. 

HUD has also made it easier for homeowners to learn about public benefits by requiring that HECM counselors conduct a benefits 

check-up screening for clients with incomes under 200 percent of 

poverty. This has helped more than 71,000 seniors find over $378 

million worth of annual benefits. 

In conclusion, NCOA believes that the long-term viability of the 

HECM program will be enhanced through a balanced approach 

that ensures strong oversight but also supports continuing collaborative research and development. We need strong consumer protections, but also want to give older homeowners the flexibility to 

meet their evolving financial needs. 

Thank you again for this opportunity to share NCOA’s research 

and insights into the HECM program and older homeowners who 

consider these loans. I would be happy to answer any questions you 

may have. 

[The prepared statement of Dr. Stucki can be found on page 92 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Dr. Stucki. 

Dr. Trawinski, you are recognized for 5 minutes. 

STATEMENT OF LORI A. TRAWINSKI, PH.D., SENIOR STRATEGIC POLICY ADVISOR, AARP PUBLIC POLICY INSTITUTE 

Ms. TRAWINSKI. Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee, thank you for the opportunity to testify on behalf of AARP on the oversight of the Federal 

Housing Administration’s reverse mortgage program. As the largest 

nonprofit, nonpartisan membership organization representing peoVerDate Nov 24 2008 18:28 Sep 18, 2012 Jkt 075729 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\75729.TXT TERRIE
18 

ple age 50 and older, AARP advocates for policies that enhance and 

protect the economic security of older individuals. 

AARP’s history of involvement with the HECM program dates 

back to the 1980s. We believed then, as we do now, that older 

Americans should have a means by which to access their home equity without having to sell their homes or take on loans that will 

stretch their already tight budgets. Housing counseling is a major 

component of the consumer protections for HECM loans. Despite 

recent improvements to the counseling protocol, it appears that 

problems remain. Some counselors tell us they need 2 or more 

hours to cover all the topics required by the protocol. In contrast, 

other counselors, mainly telephone counselors, manage to conduct 

the session in less than 1 hour. We believe that this discrepancy 

may highlight a problem with the quality of counseling, and we 

urge HUD to investigate. 

We also believe that the housing counseling program should be 

fully funded by Congress, particularly since counseling is required 

by law, and lenders are prohibited from paying for counseling on 

behalf of borrowers. 

Additional funds should be allocated to foreclosure mitigation 

counseling to assist borrowers who have the capacity to become 

current on their obligations and avoid foreclosure. As a result of 

continuing problems with technical defaults for nonpayment of 

taxes and insurance, HUD plans to propose a rule requiring financial assessments for borrowers. AARP understands the need to examine a borrower’s ability to pay property charges and to be able 

to maintain their property. However, we do not believe that credit 

scores, payment history, or the existence of a bankruptcy filing or 

foreclosure should be part of the financial assessment. The determination should be whether borrowers have the ability to meet 

their basic living expenses, financial obligations, and property 

charges. And this should be determined after taking the cash flow 

from the potential reverse mortgage into consideration. 

Disclosures play an important role in consumer protection. AARP 

looks forward to working with the Consumer Financial Protection 

Bureau on the forthcoming redesign of disclosures for reverse mortgages. AARP also recommends that statements from mortgage 

servicers for borrowers who have a line-of-credit option should be 

required to provide more detailed information on credit-line growth 

and available credit. 

We have all seen the television commercials. It is unlikely that 

the designers of the HECM program ever envisioned that ‘‘the 

Fonz’’ and ‘‘I Dream of Jeannie’’ would appear in American living 

rooms to enlighten people about the benefits of a reverse mortgage. 

Some advertisements may create the impression that a reverse 

mortgage is a Federal benefit rather than a loan. While it is appropriate to educate the public about the availability of reverse mortgages, mass marketing should not be misleading or deceptive. It 

should be clear that celebrities are paid spokesmen. Despite guidance from the Reverse Mortgage Lenders Association, that is always not clear in the advertisements. 

Another area of concern is the free-lunch seminar. It appears 

that investment salespersons may be presenting reverse mortgages 

as a means of paying for their products. This cross-selling may not 

19 

be in the best interests of consumers. AARP urges the Consumer 

Financial Protection Bureau and the State financial regulators to 

monitor reverse mortgage advertising and the use of free-lunch 

seminars to ensure that there is no inappropriate marketing or 

cross-selling. AARP continues to believe that older Americans 

should have a means by which to access their home equity without 

having to sell their homes, and we believe that a reverse mortgage 

can be an appropriate financial product for some people. 

AARP urges HUD to act in a timely manner to promulgate rules 

that prohibit cross-selling and to promulgate rules for financial assessments of borrowers. In addition, we support the development of 

a wider-reaching program to assist borrowers who are in default 

before the loan reaches the foreclosure stage. 

AARP also urges the following statutory changes: removal of the 

statutory limit on the number of loans that can be insured by FHA; 

and an appropriation of sufficient funds to make sure that borrowers have access to the housing counselors they require and the 

capital they need. 

AARP supports the continuation of the HECM program, and we 

look forward to working with you and other stakeholders to ensure 

that older Americans can tap their home equity with safe, affordable, government-insured mortgage loans. 

Thank you for the opportunity to share AARP’s views. I would 

be happy to answer any questions. 

Chairwoman BIGGERT. Thank you so much. 

[The prepared statement of Dr. Trawinski can be found on page 

99 of the appendix.] 

Chairwoman BIGGERT. We will now turn to the Members for 

questions. And we will do a 5-minute clip. I will begin by recognizing myself for 5 minutes. 

Mr. Coulter, the FHA–HECM product was created and made 

available to the public in 1989, with the intent of meeting the special needs of the elderly homeowners. In the past 6 months, Congress has learned that the FHA is in a precarious financial position, admitting that it could lose up to $688 million but for the settlement that was just reached. 

Can you tell us why the government should support a 100 percent taxpayer-guaranteed reverse mortgage product? 

Mr. COULTER. Thank you for the question. And as you pointed 

out, the $688 million figure was before the Department of Justice 

settlement on servicing. That is our aggregate portfolio. 

With regard to the HECM portfolio, we are required to have each 

book be actuarially sound. So we in our budgeting process, we estimate the net present value or the net economic benefit of each 

book. And to the extent that book is not actuarially sound, we are 

required to ask for an appropriation. 

What has happened in the past is at times, that appropriation 

has not been granted, and so FHA has taken definitive steps to address the economic circumstances of the book, specifically by addressing the principal limit factor and raising the premiums on the 

book. So the bottom line is on a go-forward basis. We expect each 

book to at least pay for itself on a year-in, year-out basis, if not 

draw positive economic value to the insurance fund. 

20 

Chairwoman BIGGERT. All right. Thank you. So, the book that 

you speak of is your book of business? 

Mr. COULTER. That is correct, yes. 

Chairwoman BIGGERT. Thank you. Then, Mr. Bell—and I will 

come back to Mr. Coulter on this too—you mentioned in your testimony that Wells Fargo, or that some of the banks, Bank of America and MetLife, withdrew from the reverse mortgage market in 

the past 2 years, with MetLife withdrawing as recently as in this 

past month. Why did they leave? Mr. Bell? 

Mr. BELL. Well, each case is very different. And I was not privy 

to the deliberations that went on internally in each of those companies that led to this. But on the high level, the public reporting in 

each case was about a broad set of issues that were not particular 

to the HECM program, but really had to do with their overall business model. In the case of MetLife, they exited mortgage banking 

and banking entirely. And the reverse mortgage exit was just part 

of that whole overall effort to— 

Chairwoman BIGGERT. It seems that the media reports have indicated that some of these entities withdrew because they were not 

able to underwrite using the borrowers’ ability to make timely payments on insurance and taxes. 

Mr. Coulter, would you— 

Mr. COULTER. Sure, I would be happy to take the question. Certainly, when lenders exit a program, we are very concerned about 

that, and we do talk to these lenders about why they are making 

those decisions. Mr. Bell’s comments around the strategic misalignment with the business is certainly a driving factor for MetLife, 

and to a lesser degree with Wells Fargo. 

But there are other underlying issues that we are looking at very 

carefully. One example is tax and insurance defaults. Lenders are 

concerned about the number of tax and insurance defaults, and the 

fact that those could lead to circumstances where foreclosure on a 

senior borrower is required. And obviously, that creates risk, reputation risk to the lender. So, addressing that issue is something 

on which we are very focused. 

The other factor that is a consideration for some of these larger 

institutions is the fact that they don’t get—in some cases, their 

auditors are making the determination. They don’t get true sale 

treatment when they originate and securitize and sell a Ginnie 

Mae security. That means in essence, instead of getting those loans 

off of their books, they are required to hold capital against that, 

against those HECM loans, despite the fact that they sold them 

away. 

Chairwoman BIGGERT. Early on, we heard that some of these reverse mortgages were used, there was just a bulk delivery of the 

money to use for their income, and then it was spent right away. 

This was fixed, wasn’t it? 

Mr. COULTER. There are a number of different options that a senior has. And it is at their option that they—they make a determination as to whether to take a lump sum payment up front. Or 

to receive a payment over a period of time up through the time 

that they are 100 is one alternative. So they can either realize it 

on an annuity payment or they can realize an up-front payment. 

21 

To be candid with you, many seniors do opt for an up-front payment. And our experience right now is that most of these loans are 

drawn down to 80 percent of the maximum at the time of origination. 

Chairwoman BIGGERT. Okay. Thank you. I now recognize the 

gentleman from Illinois, Mr. Gutierrez. 

Mr. GUTIERREZ. Thank you. I had one follow-up on your question. 

So Mr. Coulter, in 2010 the HUD IG identified 13,000 defaults 

where lenders had essentially granted unlimited forbearance to 

borrowers who had defaulted because they did not pay their property taxes and insurance rather than comply with the terms of the 

HECM program. 

Can you tell us what risks this posed to the program and what 

steps HUD is taking to minimize that risk? 

Mr. COULTER. Certainly. Thank you for the question. In early 

2011, HUD put out a mortgagee letter to address this issue around 

tax and insurance defaults. You can imagine that, when going back 

prior to the housing crisis, there was substantial equity in many 

of these homes. So, servicers were advancing on behalf of borrowers, and there weren’t huge issues associated with that. 

Mr. GUTIERREZ. What are we doing so that— 

Mr. COULTER. Today what is happening is, we lay out very clear 

criteria for how much a servicer can advance, and we ask the 

servicers to work very closely with the borrowers to ensure that 

they are either put on some sort of payment plan or we work 

through other loss mitigation measures to ensure that an issue of 

tax and insurance— 

Mr. GUTIERREZ. Why don’t we just avoid it altogether? Why isn’t 

just an escrow account established to pay property taxes? That is 

the way I bought my first house. If I didn’t—I had to establish, 

first of all, when I bought the house back in 1980—I know that is 

a long time ago—I had to establish it, first of all, and fund it, and 

then I had to continue to fund it. And if it was underfunded at any 

time because of my property taxes, there was an immediate demand for me to comply with that escrow account. 

Why isn’t that done? 

Mr. COULTER. Let me say that we do believe that we have to address this issue around tax and insurance defaults. And one alternative is an escrow account. We don’t have the authority to require 

escrows at this point. 

Mr. GUTIERREZ. We don’t have the authority to address escrow 

accounts, but we are going to back the mortgages? 

Mr. COULTER. I missed the last part of the question. 

Mr. GUTIERREZ. But we are involved in backing the mortgages? 

Mr. COULTER. We don’t have the authority in the case—in the 

case of a forward mortgage, we do require escrow accounts. In the 

case of a reverse mortgage, we do not have the authority to require 

it. We are looking at a potential rule that would address this by 

virtue of doing a set-aside to make tax and insurance payments. 

And we believe that is an appropriate next step. 

Mr. GUTIERREZ. So we just continue talking; there are 13,000, 

and there is no sense of urgency in getting this done? 

Mr. COULTER. Oh, there is absolutely a sense of urgency in getting it done. Yes, sir. 

22 

Mr. GUTIERREZ. But we are continuing to back the mortgages irrespective of this—it seems like a pretty easy way to make sure 

someone is going to pay that. 

Mr. COULTER. There are two things that we are doing to address 

this. One is— 

Mr. GUTIERREZ. I get it. But it seems—so maybe you could write 

to us and tell us and give us a timeframe in which this is going 

to be addressed so that we don’t continue. Because it just seems 

to me that for the viability of the program, I don’t see why the Federal Government should be there, the taxpayers, anybody should 

be, unless you are going to put some pretty good—so somebody is 

using this because they need the money. And we find more and 

more that people are getting a lump sum. That is, here is your 

money. 

What is the guarantee, if you are not keeping any of the money, 

to make sure that potential property taxes and insurance are being 

paid? 

Mr. COULTER. You are highlighting a need for a set-aside to pay 

taxes and insurance and for a financial assessment at the time the 

loan is made. We agree with you wholeheartedly on both of those 

points, and we will respond back to you in writing with regard to 

when that will happen. 

Mr. GUTIERREZ. Do you find that more and more people are taking the whole amount, or are they taking an annuity? 

Mr. COULTER. As I mentioned a moment ago, our experience 

today is that, on average, borrowers are drawing down 80 percent 

at the time of origination. 

Mr. GUTIERREZ. 80 percent? 

Mr. COULTER. Yes. 

Mr. GUTIERREZ. So they are drawing down 80 percent of the 

money? 

Mr. COULTER. That is correct. But understand that the principal 

limit factors to draw down 80 percent—they are doing that on our 

standard HECM program. The principal limit factors on those programs would restrict the amount that they could draw, such that 

the principal balances should not grow beyond the appraised value 

of the property over the life of the borrower. 

Mr. GUTIERREZ. I don’t have any further questions. 

Chairwoman BIGGERT. Thank you. I hope that will be for the 

record in writing. That will be helpful. 

Mr. Lewis, can you explain the definition of true sale as it relates 

to reverse mortgages? And how does it affect reverse mortgage 

lenders and securitization? 

Mr. LEWIS. Sure. I am not an accountant, and I don’t play one 

on television, but I will do my best. 

Chairwoman BIGGERT. All right. 

Mr. LEWIS. The basic issue surrounding true sale is whether— 

when the loans have been placed into the securitization, into the 

Ginnie Mae HMBS—whether from an accounting perspective the 

assets leave the books of the seller. So what we are doing in fact 

is selling loans, putting them into a trust. The trust is then being 

sold to an investor. So, they are physically leaving our balance 

sheet. But from an accounting perspective, the accountants are saying this is really essentially a financing rather than a sale. So that 

23 

when we look at the books of an originator, those loans are still on 

their books. 

If you look at our company, Generation Mortgage, we have issued about $3 billion in Ginnie Mae HMBS. And even though our real 

economic balance sheet is probably $100 million of assets and liabilities, the way that our accounting presently represents the 

books of Generation Mortgage, it looks like we have $3 billion of 

assets and liabilities. That is a significant impediment to certain 

kinds of institutions participating in the marketplace. 

Chairwoman BIGGERT. So what would happen to the financing 

available for reverse mortgages if securitors cannot get true sale 

treatment when they sell reverse mortgage securitizations to investors? 

Mr. LEWIS. Certain kinds of regulated institutions are going to 

be required to post capital against the size of their balance sheet. 

So you are unlikely to get widespread participation by financial institutions like the companies which have already left the industry. 

And I am sure that—again, I am not privy to the internal discussions that took place at MetLife—that this was definitely probably 

an issue for them. 

And as we look at people looking entering the space and joining 

the market, even parties that are not financial institutions are 

given pause by this lack of sale treatment, because at the end of 

the day, if they make an investment, it is probably with an idea 

that at some point, they would exit it. And to whom are you going 

to sell the business if whoever you are going to sell the business 

to has to take on this very large parent balance sheet? 

Chairwoman BIGGERT. As long as we don’t start slicing and dicing. Thank you. 

Dr. Sanders, the HECM program has shown an explosive growth 

in the last 6 years, and more than 78 percent of total HECMs endorsed since 2006. The New York Times said in 2010 that the increase is due partly to the recession, which has squeezed retirees, 

and partly to more aggressive marketing. 

Wall Street investors have recently become bigger buyers of the 

reverse mortgages that are packaged into these securities. And that 

has made reverse lending more profitable, causing lenders to push 

the loans harder. And they also said, ‘‘If all this sounds chillingly 

familiar, it should.’’ 

What do you make of the growth in the program? And does it 

spell a retreat of what we went through in the forward mortgage 

market in 2007 and 2008? 

Mr. SANDERS. Thank you for the question. First of all, I want to 

point out that everyone loves a guarantee, particularly if someone 

else pays for it. That was part of the problem we had with the 

original housing bubble, is that we had subsidies and guarantees 

galore, and then the market blew out of control. The market has 

collapsed. Now, here we are, sitting on this one. And so, that is my 

fear. 

Now, there is a solution for Freddie and Fannie, and one can be 

applied here as well. How about a simple risk-sharing rule if you 

are not willing to get rid of the guarantee? That way, you have the 

lender—Mr. Lewis already mentioned the capital issue related to 

securitization. Why not have a stronger risk-sharing role that the 

24 

lenders have to take a big piece of this if they don’t do this properly? And I would even suggest maybe a little risk-sharing role for 

the counselors, since they are the ones who are advocating or advising people to get into this. How about if they take a piece of the 

action if this doesn’t work out so well? 

Say ‘‘yes.’’ I didn’t think that would go over too well at the table, 

but I just thought I would throw it out there. 

Chairwoman BIGGERT. Thank you. Then Mr. Fenton, do you 

think that this committee can do anything to further consumer protection improvements in the HECM program? What suggestions 

would you have? 

Mr. FENTON. Thank you for the question. I think at this stage, 

that the regulating body, HUD, has the tools to effectively oversee 

the reverse mortgage counseling program. Specifically, they have 

detailed data going down to a per-counseling session basis on the 

time involved with each session. They have powers to provide agency reviews and review individual files. They have a specific reverse 

mortgage review process for housing counseling agencies. Quite 

honestly, I think the tools are there. It is really a question of energetic enforcement. 

Chairwoman BIGGERT. When you have a 2- or 21⁄2-hour counseling session, is this done generally on the phone or in person? 

Mr. FENTON. Thank you. For our particular organization, the majority of sessions are done over the telephone. The 21⁄2 hours is 

really split into three different parts. As you can imagine, sitting 

on the phone for 21⁄2 hours would be challenging for anyone. 

It is actually done in three parts. There is a kind of document 

introductory, document preparation session; there is a general education session around the reverse mortgage and alternatives and so 

on; and then the final piece is the individualized budgeting welfare 

benefits analysis. The process is the same on the phone or face-toface. For our organization, there is literally no difference in the 

way we approach that. 

Chairwoman BIGGERT. How do you measure the effectiveness or 

define the effectiveness of the counseling? 

Mr. FENTON. For our organization, the process we use is an internal quality control process. We regularly monitor counseling sessions and score the performance of those counseling sessions. We 

record them, I should say. We record them and score them against 

a pre-set template, which is basically tracking the necessary scores. 

It gets used on a monthly basis to either ‘‘attaboy’’ good counselors 

or look for improvements where there is work that needs doing. 

Chairwoman BIGGERT. Thank you. Mr. Shadab, in your testimony, you note that the demand for reverse mortgages is likely to 

grow substantially over the next several years due to an aging population and growing healthcare costs and lack of savings for retirement. 

Do you believe that the private market can support this growing 

demand? Or if so, how do you explain that less than 5 percent of 

the reverse mortgages are currently privately provided? 

Mr. SHADAB. Yes. Thanks for the question. I do believe that the 

private markets can support what will most likely be a growing demand for reverse mortgages of all kinds. And primarily because a 

secondary market for reverse mortgages will likely develop as the 

25 

credit markets sort of heal, including the securitization markets. 

The reason right now there is such a small market share for nonHECM reverse mortgages is because there is no secondary market 

for conventional and reverse mortgages, and also to some extent 

HECM mortgages are basically crowding out and outcompeting 

conventional reverse mortgages because of the subsidy that they 

get from governmental involvement. 

Chairwoman BIGGERT. Thank you. Mr. Dold is recognized for 5 

minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. I appreciate the 

time. And again, I want to thank you all for taking your time to 

be with us today. 

Mr. Lewis, if I may, I would like to just start with you. Many 

of us in Congress, along with many of our constituents, are very 

concerned about Fannie and Freddie and the ongoing GSE bailout 

and the possible future losses at FHA. 

How would you distinguish the HECM product from the GSEs 

and other FHA products? And what, if anything, distinguishes the 

HECM product as a largely private sector solution that can help us 

address our growing public policy challenges related to the increasingly aging population. 

Mr. LEWIS. Thanks for the question, Congressman. I think that 

this is sort of an example of government working in a fantastic way 

to reward people for good behavior. The only people who can use 

a reverse mortgage are people whose debt balances are sufficiently 

low, that the principal limit factors are sufficient to completely retire their existing debt. The only people who are going to have access to this product, the way it is currently set up, are people who 

have behaved responsibly. And what we are allowing them to do 

is utilize their own funds in a way in which the insurance fund 

acts and the way an insurance fund is supposed to, which is that 

the people who pay too much insurance premium because the government doesn’t pay any claims, they end up subsidizing the people 

where there are claims paid. 

And again, our position is that the product should be priced and 

should be structured as it is today, in such a manner that there 

is no direct cost to the taxpayer. 

Mr. DOLD. Again Mr. Lewis, if I may, I am just going to continue 

with you for a minute. 

Mr. LEWIS. Sure. 

Mr. DOLD. All of us on both sides of the aisle support adequate 

consumer protection. I think that is safe to say, especially with respect to financial products. And my understanding is that the 

CFPB is conducting a consumer protection study on the reverse 

mortgage industry. Of course all of us understand that regulatory 

compliance necessarily has costs, and those costs generally are 

passed along to the consumer in the form of higher prices, diminished product access and availability, or limited service, or product 

options and innovations. So we are always looking for that optimal 

point where we are adequately protecting consumers, but we are 

not unduly restricting legitimate product availability or imposing 

unnecessarily high costs on consumers. 

26 

Now, with that in mind, let me ask you a few related questions 

and then get your reaction, if I may, after I ask a few of them. And 

then we can go from there. 

First, what regulatory burdens is the industry facing today, if 

any? And what role do you see the CFPB playing in your industry? 

Second, given the industry’s small size and the expected future 

growth to meet our aging population’s future demands, what types 

of potential regulations do you think would unnecessarily harm the 

industry and, by extension, the seniors who rely upon reverse mortgages for financial independence? 

And finally, do you think that the existing housing counseling requirement diminishes or eliminates the need for additional broadbased or detailed regulations; or are there possible improvements 

to the counseling program that could make it more effective than 

an entirely new and broad regulatory framework? 

Mr. LEWIS. Okay. I will take the first question in terms of the 

regulatory burden that we face today. One of the interesting aspects to the departure of the national banking companies that have 

left is that they only worked with one layer of supervision, basically at the Federal level. The rest of us who remain are generally 

mortgage banking companies. And so, we have State regulators, 

and we are a national company, so we are basically dealing with 

every State, as well as the Federal authorities. One of the largest 

components of our expense budget is for regulatory compliance, and 

we are essentially living in a constant state of examination by one 

party or another. 

The industry was started in 1989, and has been Federally dominated in terms of the market share ever since then. And as such, 

the Federal Government really has created the regulatory framework from the beginning. And the industry has always accepted 

the understanding that it will be a very highly regulated, very 

closely scrutinized industry. We know who you are our clients are. 

We know what their circumstances are. And we understand that 

no behavior is ever going to be tolerated in this industry that is not 

appropriate. 

And so we always welcome anything that comes from a regulatory perspective that is protective of our consumers, as well as 

gives them, frankly, more confidence that when they are involved 

in this industry, they will be safe. 

With respect to the CFPB, I can’t speculate on where they are 

going to come out. My understanding is that some of what they are 

working on is a simplification of disclosures to consumers generally 

in mortgage transactions. And I can say that, as a person who has 

refinanced my own mortgage and sat at the table with a thicker 

pile of papers than this one that was designed to protect me, I am 

not sure that the effect of an ever-increasing stack of paper is ultimately that which is intended. It ends up actually making it very 

difficult for people, I think, to understand what significantly should 

be disclosed to them. To the extent that we can simplify disclosures, make them clearer, or make them more substantive, I think 

that would be very, very useful in protecting consumers. 

You talk about the size of the companies that are left in the industry, relatively small companies bearing this regulatory burden. 

I think that we all recognize that it is a cost of doing business, and 

27 

we all accept the fact, given who our consumers are, given the fact 

that we are primarily making government loans, that we are going 

to have to deal with a very high level of regulation. 

It is interesting to note that when the conventional market was 

operating more effectively prior to the housing debacle, as well as 

today with us making the only jumbo mortgage available nationally 

right now, all the lenders have generally, on a voluntary basis, 

adopted all the protections that are inherent in the FHA program 

in nongovernment loans. 

The last question was about existing requirements. We have a 

tremendous amount of work that is required of us, but we accept 

that in the interests of making sure that consumers are protected. 

Chairwoman BIGGERT. The gentleman yields back. 

The gentleman from California, Mr. Sherman, is recognized for 

5 minutes. 

Mr. SHERMAN. Madam Chairwoman, I want to thank you for 

holding these hearings. 

Reverse mortgages are particularly important for us in high-cost 

areas like the San Fernando Valley. In other areas of the country, 

you may have your savings, and then you may have some equity 

in your home. In my area, when you get to retirement age, your 

savings is your home. And a reverse mortgage is the only way to 

stay in your home and tap into your savings. And so, I thank the 

gentlemen here for being part of an industry that allows people in 

my area to do that. 

Mr. Bell, in just about every part of our economy, it is good for 

consumers to have competition. And now and then, the government 

will make life so uncertain that, without actually providing any 

consumer protection, just by being uncertain and not making up 

our minds, or having something that has to renew every year and 

everybody thinks it is going to renew and maybe it will or maybe 

it won’t, you get a lot of companies outside of the industry and you 

reduce the amount of competition and that is bad for consumers. 

What impact does the need to deal with the authorization cap 

each year have on the reverse mortgage market, and what effect 

does it have on consumers? 

Mr. BELL. It has a lot of impacts. 

First of all, from the side of businesses, it makes it hard to plan 

long range and to make a long-term commitment to investing in 

the infrastructure that one needs to enter this business. You can’t 

be a mortgage lender in forward mortgages and just decide overnight to become a reverse mortgage lender. It requires a different 

operating platform for origination, a different servicing platform. 

So, there is a big capital investment and intellectual investment required to make that transition. And the fact that the program 

could disappear by a lapse in the authorization authority is a deterrent. 

From the consumer side, I think the problem is even greater. Because one of the things that we stress as an industry is we want 

consumers to make an informed decision at a comfortable pace. We 

want them to take all of the time that they need to figure out 

whether the reverse mortgage really serves their needs. And, for 

instance, what we face right now, come September 30th, we could 

see this program disappear. So a consumer who is thinking about 

28 

this as we get into the fall is forced to accelerate their decisionmaking process. That is an unfair position to put them in. 

Mr. SHERMAN. It seems to be one of the many areas in which 

Congress would serve the public if we just made a decision and 

made a permanent decision. 

I want to commend Mr. Fitzpatrick—since he is not here, we will 

tell him I went on and on commending him—and I join with him 

in an amendment that we offered and withdrew to strike the current volume cap on this program since it has been suspended continuously since 2007. 

Mr. Bell, are you seeing any progress in addressing the widely 

reported tax and insurance default industry? 

Mr. BELL. Yes, there is a lot of progress there. Deputy Assistant 

Secretary Coulter referred to some of it earlier. But there is a bit 

of activity under way. 

First of all, HUD has required the lenders to report more expeditiously on the status of cases that might be heading to or in a technical default. The Department has worked with the counseling 

community to create a task force of 125 counselors who have been 

specifically trained in remedial approaches to dealing with the tax 

and default issue. The Department is also at work on a rule on financial assessment which will give lenders the ability and guidance on how to underwrite borrowers to ascertain that they will be 

able to meet their obligations once they have their reverse mortgage. And we are also hoping that rule will give lenders the ability 

to use their discretion to either limit the payouts that potential 

borrowers might face if they are constrained on their cash flow or 

to be able to require a set-aside of some of the funds to be used 

for that. 

So, there is a lot of progress in that area. 

We are also finding that remedial counseling for those people 

who are already in a technical default oftentimes result in being 

able to find other resources to help them handle other obligations 

such as home heating fuel assistance, which could free up money 

that could then be used to pay taxes, and food stamps in some 

cases. So, there has been a lot of progress in the area and a very 

strong leadership in that direction. 

Mr. SHERMAN. I am going to see if the chairwoman will let me 

sneak in one more question; and that is, can you explain your organization’s Borrow with Confidence campaign? 

Mr. BELL. Sure. One of the challenges with reverse mortgages is 

that they are a product that is very highly misunderstood by the 

general public, and we believe in order for us to really reach the 

broad number of people who could benefit from it, that people have 

to become comfortable with the concept, comfortable with the companies that deliver the reverse mortgages, and that there has to be 

a very transparent process for which reverse mortgages are delivered. So our Borrow with Confidence program is designed to 

achieve those objectives. 

We have put out a number of tools to help consumers shop for 

reverse mortgages to give them information in a non-sales environment. We have a Web site, Reversemortgage.org, that takes them 

through every aspect of reverse mortgage from originally inquiring 

about it right through the loan termination phase. We have put out 

29 

a document called the ‘‘Roadmap to Reverse Mortgages’’ that gives 

them a very comprehensive guide. And we also have all of our 

members committed to a pledge to consumers that lays out a number of activities that they can expect from their lender to help them 

fully understand the reverse mortgage they are contemplating. 

Chairwoman BIGGERT. I am going to recognize myself again. 

Dr. Stucki, you noted in your testimony that the average age of 

a HECM borrower has fallen from 76.7 years in 1990 to 72 years 

in 2012, and the percentage of prospective borrowers aged 62 to 64 

has increased 15 percent since 1999. And it seems like this group 

is more prone—the 62 to 64 group is more prone to delinquency 

than the older borrowers with the most technical defaults occurring 

in the first 4 years of the loan. Is there any implication between 

this age shift and delinquency increase? 

Ms. STUCKI. Thank you for the question. 

To the extent that younger borrowers are primarily interested in 

managing debt and reducing debt, there is clearly going to be a 

greater risk of default. They are more likely be taking out those 

lump sums that leave very little to sustain themselves in the future and to deal with their borrower obligations. 

I think that is why we really need to take generational differences into account as we think about counseling and some of the 

other protections for borrowers. Clearly, older borrowers more likely to want to be using this to maintain their health standards, pay 

for those out-of-pocket health expenses and others, in contrast with 

the younger borrowers being more focused on debt. 

I think it is very important that we stress the retirement planning element of home equity in general and reverse mortgages in 

particular so people really understand both how to use these loans 

for immediate needs as well as for long-term sustainability. 

Chairwoman BIGGERT. Thank you very much. 

And, Dr. Trawinski, why are the—it is like the phone-based and 

in-person counseling sessions are of such different duration, with 

the in-person sessions seeming to last significantly longer. Is there 

a difference in quality between the two types? 

Ms. TRAWINSKI. Thank you for the question. 

I just would like to clarify. My testimony is questioning the time 

spent with the client and the idea that sometimes it seems that the 

telephone counseling sessions don’t seem to take as long. The issue 

is time spent with the client, and whether in less than an hour, 

you can cover all of the topics. 

I have been through the counseling training offered by 

NeighborWorks and I can tell you that it would seem to me to be 

relatively impossible to cover all of the protocol topics in less than 

an hour. So that was the issue. 

Chairwoman BIGGERT. Okay. Thank you. 

I think that GAO looked at this issue in 2009, didn’t they? 

Should they review it again? Is it necessary? 

Ms. TRAWINSKI. I think that would in fact be a good idea, because we hear from counselors all the time, and they have raised 

issues with us in this regard. 

Chairwoman BIGGERT. Thank you. 

Mr. Coulter, when will HUD publish new regulations or guidance 

for lenders? You mentioned these earlier. I think it is rumored that 

30 

the CFPB is working on a study, and that was mentioned here, regarding reverse mortgages. Are you or other FHA officials familiar 

with this effort and are you working with CFPB and what will the 

study specifically entail. 

Mr. COULTER. I am not specifically familiar with the work that 

CFPB is doing. I can tell you, however, that the issues we have 

talked about here, in particular assessing—doing a financial assessment, that is something that we are focused on and we are 

looking to publish a rule on that on or around the fourth quarter 

of this year. 

Chairwoman BIGGERT. Don’t you think it is kind of odd that you 

are not hearing anything from the CFPB since this is obviously in 

HUD, that you haven’t talked to them about it or anything, the 

study? 

Mr. COULTER. I would need to follow up and determine exactly 

the nature of the study and what the nature of their focus is. 

Chairwoman BIGGERT. All right. 

When are you going to publish the regulations or guidance for 

lenders? 

Mr. COULTER. As I mentioned around financial assessments, we 

are targeting the fourth quarter of this year. 

Chairwoman BIGGERT. I guess there are no further questions. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit questions to these witnesses and to place 

their responses in the record. 

And I would like to thank you all. It has been a great panel, with 

a lot of information from a lot of different groups, and that is very 

important to us. So I thank you all for being here. 

And with that, this hearing is adjourned. 

[Whereupon, at 4:13 p.m., the hearing was adjourned.] 

(31) 

A P P E N D I X 

May 9, 2012 

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