[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

                          PROGRAM FOR SENIORS



                               BEFORE THE

                            SUBCOMMITTEE ON
                         INSURANCE, HOUSING AND
                         COMMUNITY OPPORTUNITY

                                 OF THE


                     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


75-729 PDF                WASHINGTON : 2012
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                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois

           James H. Clinger, Staff Director and Chief Counsel
      Subcommittee on Insurance, Housing and Community Opportunity

                    JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois, 
    Chairman                             Ranking Member
GARY G. MILLER, California           MAXINE WATERS, California
SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts

                            C O N T E N T S

Hearing held on:
    May 9, 2012..................................................     1
    May 9, 2012..................................................    31

                         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


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

                        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 
    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 
    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.
    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.
    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 1\1/
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 
    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 
    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 
    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 resources 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 
    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, 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 
    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.


    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.
    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 
    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.


    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 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 provides 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.


    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 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 day-to-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 
exam-based 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 
    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.
    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.


    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 
    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 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 
    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.
    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.


    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 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 
    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 
    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 subsidized. 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.

                        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 Mae-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 
    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 
    Even in 2000, prior to the development of recent housing 
and securitization bubbles, $57.8 billion of private forward 
mortgage-backed 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 
problem for borrowers seeking reasonably priced reverse 
mortgages. As the private securitization market grows, the 
availability of lower-cost conventional mortgages will grow as 
    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.


    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 
    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 financial 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 
    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.


    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 people 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 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 
    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.
    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 
    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.
    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 
    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 
    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 
    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.
    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 
    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 
    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 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 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 
    Chairwoman Biggert. When you have a 2- or 2\1/2\-hour 
counseling session, is this done generally on the phone or in 
    Mr. Fenton. Thank you. For our particular organization, the 
majority of sessions are done over the telephone. The 2\1/2\ 
hours is really split into three different parts. As you can 
imagine, sitting on the phone for 2\1/2\ 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-to-face. 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 
    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 credit markets sort of heal, including 
the securitization markets. The reason right now there is such 
a small market share for non-HECM 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 
    Chairwoman Biggert. Thank you. Mr. Dold is recognized for 5 
    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.
    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 broad-based 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 
    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 
    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 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 
    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 this as we get into the fall is 
forced to accelerate their decision-making 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 
    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 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 
    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 
    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 
    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 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.]

                            A P P E N D I X

                              May 9, 2012