FHA Modernization Act of 2007

Floor Speech

FHA MODERNIZATION ACT OF 2007 -- (Senate - December 14, 2007)

BREAK IN TRANSCRIPT

Mr. CRAPO. Mr. President, I rise in opposition to the Coburn amendment. This amendment calls into question how we are going to modernize the FHA reversion mortgage program, often called the HECM, or home equity conversion mortgage program. I have long been a supporter of the program, and I have worked with a number of members of the Banking Committee, a bipartisan group, to remove the volume limit on the amount of reverse mortgages the FHA may insure. I especially thank the other Senators who have worked on this: Senators Dodd, Shelby, Reed, and Allard.

I understand the concerns my colleague from Oklahoma is raising about the need to further understand and be able to evaluate the development of the reverse mortgage industry.

Although I support the report that is in the bill that will help us to do that, it is very important to understand why this amendment is the wrong approach to getting a better handle on understanding reverse mortgages.

There has been a cap imposed on the number of reverse mortgages that can be issued by the FHA and by HUD. That cap has already been reached. So if we don't lift the cap while we are conducting the study, the program essentially terminates.

The reason we must not allow that to happen is the very reason the Senator from Oklahoma has been talking about: We need to have further ability to study and evaluate this program and refine its effectiveness. That is what the study is in place for. We need a program for the study to continue to be effective.

What does the report that we included in the bill do? It requires that the GAO help Congress analyze and determine the effects of limiting the amounts of the costs or fees under the program from the amounts charged under the program as of the date of enactment. It goes through a number of requirements; for example, requiring that we focus on the cost to mortgagors for participating in the program, the financial soundness of the program, the availability of credit under the program, the cost to the elderly homeowners under the program, particularly evaluating mortgage insurance premiums charged under the program, the upfront fees, and the margin rates charged under the program.

I went through that on purpose because I think it is important that we understand there are issues here about reverse mortgages that we are studying. But the issues right now focus most significantly on making sure that the elderly who are participating in this program don't pay significantly high or overly high upfront fees.

The program is very successful in terms of protecting the taxpayer. Over the next 5 years, it is estimated that not only will this program not cost the taxpayers any money, it is estimated to generate about $1.5 billion in revenues to the Treasury over the next 5 years because of the fees that are being charged as these mortgages are entered.

I think it is important to note, because it is going to be critical for the future of this program, and understand what the level of these should be, what the level of the mortgage premium should be, and have the ability to work effectively as we move forward in refining the program.

A reverse mortgage is a unique loan that enables a senior to remain in their home and to remain financially independent by converting part of the equity in their home into tax-free income, without having to sell the home, give up title, or take on a new monthly mortgage payment.

The reverse mortgage is aptly named because the payment stream is reversed. Instead of making monthly payments to the lender, as one would do with a regular mortgage, the lender makes payments to the homeowner.

This HECM program was created to serve our seniors who are ``cash poor'' but ``equity rich.'' They need to have a cashflow and they have significant equity in their home that they have built up over the years. The majority of the recipients are elderly widows. The funds from a reverse mortgage can be used for anything, such as daily living expenses, home repairs or modifications, health care expenses, prescription drugs, in-home care, existing debts, prevention of foreclosure, or any other needs that the elderly may have.

As reverse mortgages have become more understood and the real-life success stories have been told, this HECM program has grown. There is a significantly increased interest in it. Clearly, this sector of industry is going to continue to grow as baby boomers get older and the consumers' acceptance and understanding of the program increases. Increased lender participation led to competition that has already resulted in mortgage fee reductions across the country.

The point I am leading to here is simply this: This is a program we must not stop dead in its tracks by simply reimposing the cap. It is critical that the legislation we put together that lists the cap, while we are conducting this study, makes sure that we better understand how to approach defining the level of support for the program and that it is able to continue. Rather, what the amendment would do is simply reimpose the cap and essentially stop the program. There would be nothing further to study then, because the program would be ended.

I think we can all agree we need to develop these kinds of unique and helpful programs for those in our country who have reached the point in their lives where they have significant equity but don't have the cashflow they need to meet their critical life needs. This program is one that helps them in a way that preserves their dignity, their ability to live in their own home, and assures that they have an opportunity for a cashflow that will enable them to live out their lives in a way that doesn't put them in a position of constantly wondering how they are going to make next month's payments.

With that, I yield back the remainder of my time.

BREAK IN TRANSCRIPT

Source