[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]





 
                    PROTECTING SENIORS: A REVIEW OF

                    THE FHA'S HOME EQUITY CONVERSION

                        MORTGAGE (HECM) PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HOUSING,
                         COMMUNITY DEVELOPMENT,
                             AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 25, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-53
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]         





                           ______                      


             U.S. GOVERNMENT PUBLISHING OFFICE 
43-353 PDF           WASHINGTON : 2020 
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                  Subcommittee on Housing, Community 
                       Development, and Insurance

                   WM. LACY CLAY, Missouri, Chairman

NYDIA M. VELAZQUEZ, New York         SEAN P. DUFFY, Wisconsin, Ranking 
EMANUEL CLEAVER, Missouri                Member
BRAD SHERMAN, California             BLAINE LUETKEMEYER, Missouri
JOYCE BEATTY, Ohio                   BILL HUIZENGA, Michigan
AL GREEN, Texas                      SCOTT TIPTON, Colorado
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York         DAVID KUSTOFF, Tennessee
DENNY HECK, Washington               ANTHONY GONZALEZ, Ohio
JUAN VARGAS, California              JOHN ROSE, Tennessee
AL LAWSON, Florida                   BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas, Vice Ranking 
CINDY AXNE, Iowa                         Member

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 25, 2019...........................................     1
Appendix:
    September 25, 2019...........................................    31

                               WITNESSES
                     Wednesday, September 25, 2019

Bell, Peter H., President and Chief Executive Officer, National 
  Reverse Mortgage Lenders Association...........................     6
Cackley, Alicia Puente, Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office (GAO)........     5
Goodman, Laurie, Vice President, Housing Finance Policy, the 
  Urban Institute................................................     8
Mancini, Sarah Bolling, Staff Attorney, National Consumer Law 
  Center (NCLC)..................................................     3

                                APPENDIX

Prepared statements:
    McHenry, Hon. Patrick........................................    32
    Bell, Peter H................................................    35
    Cackley, Alicia Puente.......................................    45
    Goodman, Laurie..............................................    58
    Mancini, Sarah Bolling.......................................    75


                    PROTECTING SENIORS: A REVIEW OF

                    THE FHA'S HOME EQUITY CONVERSION

                        MORTGAGE (HECM) PROGRAM

                              ----------                              


                     Wednesday, September 25, 2019

             U.S. House of Representatives,
                           Subcommittee on Housing,
                             Community Development,
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:02 p.m., in 
room 2128, Rayburn Office Building, Hon. Wm. Lacy Clay, 
[chairman of the subcommittee] presiding.
    Members present: Representatives Clay, Cleaver, Sherman, 
Beatty, Gonzalez of Texas, Maloney, Heck, Lawson, Tlaib, Axne; 
Luetkemeyer, Tipton, Zeldin, Gonzalez of Ohio, Rose, Steil, and 
Gooden.
    Ex officio present: Representative Waters.
    Chairman Clay. The Subcommittee on Housing, Community 
Development, and Insurance will come to order. Without 
objection, the Chair is authorized to declare a recess of the 
subcommittee at any time. Also, without objection, members of 
the full Financial Services Committee who are not members of 
this subcommittee are authorized to participate in today's 
hearing.
    Today's hearing is entitled, ``Protecting Seniors: A Review 
of the FHA's Home Equity Conversion Mortgage (HECM) Program. 
And at this time, I will recognize myself for 4 minutes for an 
opening statement.
    In today's hearing, we will explore the racial wealth gap 
in the context of reverse mortgages, and in particular, the 
program insured by the government called the Home Equity 
Conversion Mortgage, or HECM program, which officially came on 
the books in 1988. I intend to aggressively continue to point 
out problems that exist in the broad world of housing, such as 
a lack of affordable housing, the assault on the disparity 
impact route by the Trump Administration, and the decreasing 
value of homes in Black communities like mine in St. Louis, 
many of which stem from unsound policies and business practices 
that we may be able to turn or forge ahead with viable 
solutions on.
    HECMs can help make a difference in the lives of seniors, 
providing personal and financial stability, a flow of income, 
and most importantly, peace of mind. Unfortunately, in many 
communities nationwide, a significant number of reverse 
mortgage loans are now in foreclosure, putting elderly 
homeowners at risk of eviction and homelessness. Some of the 
testimony today will provide an overview of the problems facing 
reverse mortgage borrowers while focusing on improvements that 
could be made to reduce the number of vulnerable seniors at 
risk of losing their homes.
    A recent USA Today news article sheds light on some of the 
problems that persist with foreclosures of reverse mortgages 
despite attempts by Congress and HUD to improve the program. 
According to the article, nearly 100,000 reverse mortgages have 
failed, with urban African-American neighborhoods feeling a 
disproportionate impact. Specifically, in the article, USA 
Today's investigation found that reverse mortgages end in 
foreclosure 6 times more often in predominantly Black 
neighborhoods than in neighborhoods that are 80 percent white, 
and even with counseling, seniors in St. Louis and across the 
nation have found themselves burdened with mountains of 
paperwork as they try to title after a spouse has passed, 
dealing with complicated disclosures, and in some of the worst 
cases, trying to stop foreclosures.
    And from these problems with HECM, the racial wealth gap is 
exacerbated as countless families in the Black and Latino 
communities are deprived of the chance to pass on their homes 
and other property to their children and other heirs, leading 
to increased gentrification, gutted city blocks, and less 
overall wealth. As such, I look forward to hearing from the 
witnesses today on ways to continue to improve HECM and help 
protect our most precious assets, seniors. At this time, I 
would give 30 seconds to my friend and colleague from Ohio, 
Mrs. Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman. It is indeed my honor 
today to recognize Mr. Willis Brown, who is an area 
commissioner in my congressional district. He hails from New 
York to Ohio. It is special for him to be here today because he 
is an agriculturalist specialist, domestic and international, 
with a specialty, Mr. Chairman, in housing and protecting our 
seniors. And I yield back.
    Chairman Clay. I thank the gentlewoman for that 
introduction, and welcome Mr. Brown to the committee. And at 
this time, I will yield 5 minutes to Mr. Gooden, the new acting 
ranking member of the subcommittee.
    Mr. Gooden. Thank you, Chairman Clay. I appreciate that. 
And on behalf of the Republicans on the committee, I would like 
to wish the Democratic Member Services Director, Clement, a 
happy birthday.
    Again, thank you, Chairman Clay, and thank you to our 
witnesses for being here today. Before we hear from them, I 
would like to take a moment to acknowledge the importance of 
reverse mortgages in general, and specifically HUD's Home 
Equity Conversion Mortgage program, for our aging population. 
The HECM program was created to allow seniors to access their 
real estate equity while making it possible to stay in their 
homes. Even today, its primary goal is guided by the good 
intention of allowing seniors to age in place, and protect a 
post-retirement lifestyle without the need of selling their 
home.
    While the HECM program is a good way to provide this 
opportunity to our elderly, I believe there is still some more 
room for improvement. Recently, several concerns have been 
raised about the program. Concerns about HUD servicing 
procedures, problematic foreclosures, and the issue of non-
borrowing spouses all lead me to believe that this program 
needs some measure of reform. Simply put, we need to figure out 
a solution to these problems, working closely with HUD, and if 
necessary, working out a greater reform plan, whether it be 
through legislation in this committee or otherwise.
    On that note, I would like to acknowledge Chairman Clay's 
bill to tie the HECM maximum loan amount loan limit to the area 
of maximum loan limits for FHA's forward mortgages. This is an 
interesting idea and we should always welcome ideas that could 
make a product better. I look forward to hearing from our 
witnesses today about their thoughts on this program, and I 
thank you again for being here with us. I yield back.
    Chairman Clay. Today, we welcome the testimony of: Sarah 
Bolling Mancini, staff attorney for the National Consumer Law 
Center; Alicia Puente Cackley, Director of Financial Markets 
and Community Investment at the U.S. Government Accountability 
Office; Peter H. Bell, president and chief executive officer of 
the National Reverse Mortgage Lenders Association; and Laurie 
Goodman, vice president of housing financial policy at the 
Urban Institute.
    Welcome to all of you, and let me remind the witnesses that 
your oral testimony will be limited to 5 minutes. And without 
objection, your written statements will be made a part of the 
record.
    Ms. Mancini, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

 STATEMENT OF SARAH BOLLING MANCINI, STAFF ATTORNEY, NATIONAL 
                   CONSUMER LAW CENTER (NCLC)

    Ms. Mancini. Chairman Clay, Ranking Member Gooden, and 
members of the subcommittee, thank you for the opportunity to 
testify today. I am an attorney with the National Consumer Law 
Center, where I provide training and technical assistance to 
advocates around the country, helping homeowners in reverse 
mortgage foreclosure. I also work for Atlanta Legal Aid, where 
I represent struggling homeowners, and I testify here today on 
behalf of the National Consumer Law Center's low-income 
clients.
    Charlotte Lowe was struggling. After working a lifetime, 
she was now living off of Social Security benefits and a little 
extra money from babysitting. She and her husband had bought 
their home in the 1960s. In 2003, at 68 years old, she was 
faced with the need to make significant modifications and 
repairs to her home. She had no other savings, but the mortgage 
on her home of 38 years was paid off. Congress authorized HUD 
to create the HECM program to help seniors like Ms. Lowe tap 
into their home equity without the risk of displacement.
    Borrowers aged 62 and up can obtain the loan proceeds 
either as a lump sum, a line of credit, or a stream of monthly 
payments, and are not required to pay back principal or 
interest on the loan while they live in the home. The balance 
grows over time and the loan is paid off when the borrower dies 
or moves out. Without this option, many seniors would have to 
either sell their home, leading to higher housing costs, or 
take out a regular mortgage which is often not affordable and 
can lead to foreclosure. The HECM program makes a huge 
difference in the lives of older adults, allowing them to 
remain stable in their homes. Unfortunately, a significant 
number of reverse mortgage loans are now in foreclosure, 
putting older borrowers at risk of eviction and homelessness.
    We want to thank Chairwoman Waters for her leadership on 
these issues and for the discussion draft of her bill, the 
Preventing Foreclosures on Seniors Act, which would provide 
significant relief for older homeowners. On Monday, HUD 
announced a new policy on reverse mortgage non-borrowing 
spouses. HUD has now removed the problematic deadlines for the 
mortgagee optional election, or MOE, which allows the spouse to 
remain in the home. This change will help many struggling 
widows and widowers, and we want to thank HUD for addressing 
those problems. I want to focus on a significant unresolved 
problem: property charge defaults.
    According to HUD data, as of 2016, roughly 90,000 reverse 
mortgages were in default on property charges. Out of 600,000 
active HECM loans, having close to 100,000 in default is 
staggering. Why are so many HECMs in default on property 
charges? A significant factor is the aggressive marketing of 
reverse mortgages by silver-haired celebrities often 
misrepresenting that this is a payment-free and risk-free loan. 
In my written testimony, I describe the enforcement actions as 
recent as 2016 of this very kind of false advertising. Many 
HECM borrowers did not understand that they were obligated to 
pay the property taxes and homeowners' insurance. If they had a 
forward mortgage in the past, those charges had been escrowed 
as part of their monthly payments.
    For years, HUD did not require lenders to foreclose when 
borrowers defaulted on property charges. Borrowers sunk deeper 
into default without even knowing it. And in 2015, HUD abruptly 
changed its policy and began requiring lenders to foreclose 
quickly on these borrowers. HUD tells lenders that they can 
offer the borrower a home retention option like a repayment 
plan, but any such review is optional, and if the lender 
doesn't foreclose within the required timeframes, HUD imposes a 
financial penalty known as interest curtailment. The lenders' 
incentive is to foreclose quickly and not bother with loss 
mitigation.
    HUD should address these problems by: number one, making 
loss mitigation mandatory for new HECM loans; number two, 
expanding the available loss mitigation options; and number 
three, providing servicers with a clear extension of 
foreclosure deadlines to evaluate loss mitigation. Chairwoman 
Waters' draft bill would require all of these changes. The 
impact of the reverse mortgage foreclosure crisis is being felt 
primarily and disproportionately in communities of color, where 
the rates of reverse mortgage foreclosure are 6 times higher 
than the rates in majority white neighborhoods.
    Many HECM borrowers are losing homes that have been in 
their families for generations. And of course, every 
foreclosure impacts home values in the whole community. The 
best way to address this problem for these communities and all 
reverse mortgage borrowers at risk is to require effective loss 
mitigation and servicing of HECM loans.
    Thank you, and I will be happy to answer any questions from 
the committee members.
    [The prepared statement of Ms. Mancini can be found on page 
75 of the appendix.]
    Chairman Clay. Thank you for your testimony. Ms. Cackley, 
you are recognized for 5 minutes.

STATEMENT OF ALICIA PUENTE CACKLEY, DIRECTOR, FINANCIAL MARKETS 
AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 
                             (GAO)

    Ms. Cackley. Chairman Clay, Ranking Member Gooden, and 
members of the subcommittee, I am pleased to be here today to 
discuss oversight of reverse mortgages made under the Home 
Equity Conversion Mortgage (HECM) program administered by the 
Federal Housing Administration (FHA). Reverse mortgages, or 
HECMs, are loans that allow seniors to convert part of their 
home equity into payments from a lender while still living in 
their homes.
    While reverse mortgages can help senior homeowners meet 
financial needs, they also can present risks to borrowers and 
their spouses. My testimony summarizes findings from our report 
on the HECM program, which is being released today. I will 
address three main topics. First, our analysis of FHA data on 
HECM loan outcomes, including terminations and the use of 
foreclosure prevention options, as well as the extent to which 
FHA monitors these indicators. Second, FHA's oversight of 
companies that service HECMs. And third, FHA's collection and 
use of consumer complaint data for oversight of the HECM 
program.
    According to our analysis, in recent years, a growing 
percentage of HECMs have ended because borrowers defaulted on 
their loans. Terminations due to borrower defaults increased 
from 2 percent in Fiscal Year 2014 to 18 percent in Fiscal Year 
2018. Most HECM defaults were due to borrowers not meeting 
occupancy requirements or failing to pay property charges, such 
as property taxes or homeowners' insurance. Since 2015, FHA has 
allowed HECM servicers to put borrowers who are behind on 
property charges into repayment plans to help prevent 
foreclosures. However, as of Fiscal Year-end 2018, only about 
22 percent of these borrowers had received this option.
    We found that FHA's monitoring of performance assessment 
and reporting for the HECM program all have weaknesses. For 
example, FHA loan data do not currently capture the reason for 
about 30 percent of HECM loan terminations. FHA also has not 
established comprehensive performance indicators for the HECM 
portfolio and has not regularly tracked key performance 
metrics. That is metrics such as the percentage of HECM 
terminations due to borrower defaults, the proportion of active 
HECMs with delinquent property charges, or the percentage of 
distressed borrowers who have received foreclosure prevention 
options.
    In our report being released today, we recommend that FHA 
take steps to improve the quality and accuracy of HECM 
termination data, and that it establish, periodically review, 
and report on performance indicators for the HECM program and 
examine the impact of foreclosure prevention options in future 
program evaluations. Additionally, FHA has not developed 
internal reports to comprehensively monitor patterns and trends 
in loan outcomes. As a result, FHA does not know how well the 
HECM program is serving its purpose of helping meet the 
financial needs of elderly homeowners.
    We recommend that FHA develop analytic tools such as 
dashboards or watch lists to better monitor outcomes for the 
HECM portfolio. These tools could help FHA more easily track 
and monitor useful metrics such as termination reasons, 
defaults, use of foreclosure prevention options, or advances 
paid by servicers on behalf of HECM borrowers for unpaid 
property charges. With respect to FHA's oversight of HECM 
servicers, we found that oversight has been limited in recent 
years. FHA has not performed comprehensive on-site reviews of 
HECM servicers' compliance with program requirements since 
Fiscal Year 2013.
    We also recommend that FHA develop and implement procedures 
for conducting on-site reviews of HECM servicers, including a 
risk rating system for prioritizing and determining the 
frequency of reviews. With respect to FHA's collection and use 
of complaint data, FHA collects and records inquiries and 
complaints about HECM, and it has access to the Consumer 
Financial Protection Bureau's (CFPB's) data on reverse mortgage 
complaints. However, FHA does not use its inquiry and complaint 
data to help inform HECM program policies and oversight, and 
the way data are collected does not produce quality information 
for these purposes.
    We also found that FHA has not leveraged CFPB complaint 
data for HECM program oversight. We recommend that FHA collect 
and record consumer inquiries and complaints in a manner that 
facilitates analysis of the type and frequency of issues 
raised. We also recommend that FHA periodically analyze 
available internal and external consumer complaint data about 
reverse mortgages to help inform management and oversight of 
the HECM program. These actions could improve FHA's ability to 
detect and respond to emerging consumer protection issues 
regarding HECMs.
    Chairman Clay, Ranking Member Gooden, and members of the 
subcommittee, this completes my statement. I would be pleased 
to respond to any questions you may have at this time.
    [The prepared statement of Ms. Cackley can be found on page 
45 of the appendix.]
    Chairman Clay. Thank you very much for your testimony. Mr. 
Bell, you are recognized for 5 minutes.

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

    Mr. Bell. Chairman Clay, Ranking Member Gooden, and members 
of the subcommittee, thank you for convening this hearing. 
Several issues regarding reverse mortgages have been discussed 
by this committee in the past, and that has always resulted in 
steps being taken to strengthen the program. By and large, the 
HECM program has been largely successful helping over a million 
households deploy their housing wealth to live a more 
comfortable retirement. We should not lose sight of that fact. 
Nevertheless, whenever a new program concept is implemented, 
there is always a learning curve and room for improvement.
    The Congress and several Administrations have taken steps 
over the years to improve the FHA Reverse Mortgage Program, 
including enhancing counseling to include financial assessment 
and benefits checkup, requiring set-asides for taxes and 
insurance, reducing principal limit factors, creating higher 
mortgage insurance premiums, limiting the amount of equity that 
can be withdrawn in the first year of HECM, implementing loss 
mitigation tools for borrowers in default, and creating 
protections for non-borrowing spouses. Each time, the program 
has emerged stronger, consumers have been given better 
safeguards, and the FHA fund has been further protected. I am 
sure that will be the outcome of the discussion today.
    In fact, earlier this week HUD issued a mortgagee letter 
improvising revised procedures for non-borrowing spouses, which 
I believe will address several of the concerns voiced here 
today. The Waters-Heck bill would make similar changes to HUD's 
initiative, and it goes a little further. One important change 
is it would extend the so-called non-borrowing spouse 
provisions to cases where the borrower is not yet deceased but 
has left the home permanently and is living in a care facility.
    The HECM is a highly misunderstood financial instrument. 
There is a lot of angst about it. There is also a widespread 
notion that lenders are looking to take advantage of borrowers. 
This is misguided. Lenders are in the business of making loans, 
not owning real estate. No lender ever wants to foreclose if it 
can be avoided. Foreclosure, however, is often the routine 
manner of terminating a reverse mortgage. When a borrower 
passes away and the loan balance exceeds the value of the home, 
there is little incentive for the heirs to take any action.
    In other cases, there is no next of kin available to step 
in and handle a property in this position. Lenders must act 
within HUD's specified timeframes, inhibiting their ability to 
work with borrowers in default. HUD's mortgagee letter issued 
this week now provides some greater flexibility.
    To prepare for this hearing, we collected data from two 
servicers with significant HECM portfolios. The first servicer 
looked at a portfolio of 329,000 loans. Of these, 18 percent 
went to foreclosure. However, over 75 percent of those were due 
to death of the borrower or non-occupancy. Only 5 percent of 
the loans in this portfolio ended up in foreclosure due to tax 
and insurance default while someone was living in the home.
    The second servicer, who reported on 179,000 loans, found 
that 22 percent went to foreclosure, but over half of those, 
50.3 percent, were due to death, and another 15.3 percent to 
non-occupancy. Only 7.5 percent of the foreclosures in this 
portfolio were due to tax and insurance default with an 
occupant in the home. I do not believe that these percentages 
differ and might actually be lower than experienced with 
mortgages overall.
    HECMs get blamed for a lot of things, foreclosure due to 
non-payment of taxes is one example, but is this really a HECM 
issue? If someone with a forward mortgage or even someone who 
owns a home free and clear fails to pay taxes, what happens? 
They face a tax foreclosure. In fact, with a HECM, the servicer 
advances funds on the borrower's behalf and then works out a 
repayment plan that could be spread out over several years. 
This is a safeguard for HECM borrowers that is not generally 
available to other homeowners. A fair assessment of reverse 
mortgages would look not only at the end results but also the 
circumstances faced at the time of loan origination.
    In many cases, borrowers have been overburdened with 
mortgage payments that they cannot meet on their current 
income. The HECM enabled them to get rid of these monthly 
payments, providing an opportunity to focus on other expenses 
and reorganize their finances. The elimination of monthly 
payments, coupled with information that borrowers gained from 
benefits checkups and other topics discussed during the 
mandatory counseling session, are often enough to get 
homeowners back on track and preserve their ability to remain 
in their homes. In fact, the large majority of HECM borrowers 
remain in their homes until they pass away.
    In closing, I would like to reiterate that the HECM program 
has been largely successful over the years in helping most 
borrowers sustain themselves in their homes for the balance of 
their lives. We should not lose sight of this and we should 
work together to figure out how to make the program better and 
safer and more responsive to the needs of today. In my written 
statement, I addressed all of the seven questions asked in the 
subcommittee's invitation.
    I am prepared to address any of those or any other 
questions during the balance of the hearing. Thank you again 
for the opportunity to participate today and thank you for the 
sincere interest in this topic expressed by members of the 
committee. It is always a pleasure to work with you and your 
staffs.
    [The prepared statement of Mr. Bell can be found on page 35 
of the appendix.]
    Chairman Clay. Thank you, Mr. Bell. Ms. Goodman, you are 
recognized for 5 minutes.

 STATEMENT OF LAURIE GOODMAN, VICE PRESIDENT, HOUSING FINANCE 
                  POLICY, THE URBAN INSTITUTE

    Ms. Goodman. Thank you. Chairman Clay, Ranking Member 
Gooden, and members of the subcommittee. Thank you for the 
opportunity to testify today. My name is Laurie Goodman and I 
am the vice president for housing finance policy at the 
nonprofit Urban Institute. I spent close to 30 years as a Wall 
Street mortgage-backed securities analyst, and I left to found 
the Housing Finance Policy Center about 6 years ago. The views 
I express are my own and should not be attributed to the Urban 
Institute, its trustees, or its funders. My comments today will 
focus on why FHA's HECM program is so valuable and offer 
suggestions for how the program can be improved.
    Many retired and soon-to-be-retired Americans lack the 
financial assets for a comfortable retirement. Enter the 
American home, the most commonly held, invaluable asset for 
most American families. Seniors are more likely to be 
homeowners and are more apt to have more home equity than 
younger Americans. Seniors have a home ownership rate of close 
to 80 percent versus 64 percent for all households.
    In 2016, they had median home equity of $143,400, 43 
percent more home equity than homeowners of all ages. Home 
equity plays an even larger role in the net worth of Black and 
Hispanic seniors, constituting 64 and 70 percent of the median 
net worth for these houses compared to just 40 percent for 
whites.
    There are five main vehicles for extracting home equity. In 
order of popularity, there are HELOCs, cash-out refinancing, 
selling your home, second mortgages, and reverse mortgages. 
These programs are not being used extensively and reverse 
mortgages are being used the least, but HECMs are the only form 
of home equity extraction available to many lower-income and 
credit constrained homeowners.
    Reverse mortgage borrowers have the lowest income and the 
lowest credit scores in all equity extraction products. This is 
because lower-income borrowers have trouble qualifying for 
forward mortgage products that require monthly payments. In 
addition, until 2015, the HECM program had no real credit 
underwriting, and now the financial assessment is used only to 
evaluate if seniors can pay taxes and insurance. If not, there 
is a tax and insurance set-aside.
    The importance of tapping into home equity will grow as the 
senior population surges in the next decade from 22 percent of 
the population in 2016, to 30 percent by 2030. Moreover, 
younger seniors are more apt to enter retirement with a 
mortgage than older seniors, making reverse mortgages an even 
more valuable product.
    So how do we increase the use of, and fix the concerns 
about, reverse mortgages? We need to focus on three things. 
First, we need to improve financial literacy about reverse 
mortgages overall. This will cut the scope for scammers. This 
could include incorporating information about tapping into home 
equity in the financial planner certification process with 
accompanying rules about what financial planners can say and 
how they can be compensated--right now, they cannot.
    As a short-term fix, the Social Security Administration 
could provide education and outreach to seniors about reverse 
mortgages. We should also get borrowers into reverse mortgage 
counseling earlier in the process and provide more targeted 
counseling. It would be beneficial for reverse mortgage 
servicers to check in with the borrower right after closing, to 
ensure that they understand the program's benefits and 
obligations, and how to contact the servicer.
    Second, we need to simplify reverse mortgage product 
design, lower costs, and encourage innovation. This should 
include eliminating infrequently used options that just muddy 
up the world of reverse mortgages, as well as streamlining the 
process of converting a forward mortgage into a reverse 
product.
    HUD should also reintroduce a modified version of its HECM 
Saver program. We should also encourage the development of 
proprietary, non-HUD alternatives, which is a small but growing 
market, by reducing loan limits for the HECM program: $726,525 
nationwide is just too high.
    Finally, we need to redesign existing programs to reduce 
foreclosure frequency and loss severity. Foreclosures can be 
significantly reduced by making the escrow of tax and insurance 
funds to default for reverse mortgages. We can also require 
that servicers provide regular reminders to borrowers about 
their tax and insurance obligations.
    Loss severity can be reduced through improvements in the 
Cash for Keys program and by allowing existing servicers to 
continue their role after assignment. The HECM program is a 
valuable vehicle to tap into home equity, and is the sole 
option for many low-income senior households. It will become 
even more valuable and more necessary as the senior population 
grows, and the proportion of those seniors with a mortgage and 
limited retirement savings also increases. Helping more seniors 
age comfortably in their home is an issue that should generate 
bipartisan support, as the alternative for many would be a 
nursing home or another facility paid for with taxpayer 
dollars.
    There are ways to improve this valuable product to both 
better meet the needs of senior borrowers and to be more cost-
effective. I urge the committee to focus on these areas for 
improvement and to help ensure that this valuable program can 
realize its full potential.
    Thank you.
    [The prepared statement of Ms. Goodman can be found on page 
58 of the appendix.]
    Chairman Clay. Thank you, Ms. Goodman. And thank you to the 
entire panel for your testimony. Mr. Gooden, you are now 
recognized for a unanimous consent request.
    Mr. Gooden. Thank you, Mr. Chairman. I ask unanimous 
consent to insert the ranking member of the Full Committee, Mr. 
McHenry's statement into the record.
    Chairman Clay. Without objection, it is so ordered.
    I now recognize myself for 5 minutes for questions, and let 
me start with Ms. Mancini. The National Consumer Law Center has 
done some groundbreaking work in the area of reverse mortgages 
and HECMs, and your testimony today speaks to that. Can you 
talk about some of the problems with pre-loan counseling and 
how we can work to fix that?
    Ms. Mancini. Thank you, Mr. Chairman. The pre-loan 
counseling is a very important piece of the puzzle for 
safeguarding consumers as they enter into this very complex 
financial product. Unfortunately, there is not enough funding 
for HECM pre-loan counseling, and oftentimes, the counseling 
has to be done over the phone and in a very short-form format.
    Sometimes, it is no longer than 30 or 45 minutes, which is 
really not enough time to cover all of the issues that have to 
be covered in that pre-loan counseling. So, the pre-loan 
counseling, while it is very important, could be more effective 
if there was better funding for housing counselors to be able 
to devote more time and go into more detail.
    Chairman Clay. I see. And are there any current practices 
or stipulations now that are in the contracts that should just 
be outlawed? Are there any things that raise your antenna?
    Ms. Mancini. Mr. Chairman, the issues with respect to non-
borrowing spouses had been a major concern for many years. And 
unfortunately, we are not sure why HUD delayed so much in 
actually fixing that problem. It took two lawsuits to get HUD 
to create a program to help borrowers' non-borrowing spouses 
who were stuck in this situation.
    And then, even after 2015, there were these deadlines that 
were blocking access to help for these widows and widowers. But 
now, with the new policy that was announced on Monday, we think 
that non-borrowing spouses are in a much better situation. The 
only two issues that we see that remain to be addressed for 
non-borrowing spouses are, first, to extend the foreclosure 
deferral to situations where the borrower has moved out of the 
home for health reasons but has not yet passed away. And 
second, for loans that were originated after 2014, HUD should 
make the same change that it made for pre-2014 loans to 
eliminate the requirement to show good and marketable title or 
legal right to remain. With those additional fixes, we would be 
in very good shape.
    Chairman Clay. Thank you for your response. And let me ask 
Ms. Goodman and Mr. Bell, do you agree with Ms. Mancini's 
recommendations about how we protect the surviving spouse?
    Mr. Bell. Yes. I think that it is a very, very good idea to 
extend the non-borrowing spouse provisions that exist when the 
borrowing spouse passes away, in cases where the actual 
borrower is permanently out of the home in a care facility. And 
I believe that the draft bill, the Waters-Heck bill addresses 
that.
    Chairman Clay. I see. Ms. Goodman?
    Ms. Goodman. I agree, as well.
    Chairman Clay. Thank you. Let me ask Ms. Cackley, there was 
a USA Today article that talked about how HECM loans were 
targeted to minority borrowers in a way that led to 
disproportionate rates of foreclosures in minority communities. 
Based on GAO's investigation, is HUD appropriately monitoring 
these fair housing concerns? And specifically, does HUD collect 
sufficient data to determine if foreclosures are 
disproportionately affecting minorities?
    Ms. Cackley. Mr. Chairman, I think that is correct. HUD 
does not really have the data that it needs to, or is not 
looking at the data that it has in a way that would allow them 
to make those kinds of determinations. We do not look 
specifically at the issue of differences across minority 
populations.
    We did look a little bit at just differences in default 
rates across States, and that information is in our report, but 
just the lack of quality data that HUD has looked at and made 
use of is not enough for them to be--
    Chairman Clay. And have you all made recommendations to 
HUD?
    Ms. Cackley. Yes, sir, we made recommendations to HUD that 
they improve the quality of their data.
    Chairman Clay. I see, thank you. Mr. Bell, your industry 
has worked to improve the image of reverse mortgage lenders, 
who have, over the years, been accused of taking advantage of 
unsuspecting seniors. While unfortunately, I think you would be 
the first to agree that some of this has been self-inflicted, 
can you quickly tell us some of the reforms that you all have 
taken up?
    Mr. Bell. There have been a lot of reforms over the years. 
Strengthening counseling, I think is an important one. Adding 
the financial assessment component to counseling is very 
important. We try to do that on a voluntary basis initially 
within the industry, but we do not represent 100 percent of the 
industry.
    So instead, we look to HUD to implement it, which they 
ultimately did, and that has made a big difference. You see 
that the books of business, the post-financial assessment 
performed much better because part of the financial assessment 
is looking at the likelihood of success for that borrower. Do 
they have enough income to sustain themselves in the home? And 
if they do not, then we require a set-aside of some of the 
available loan proceeds to be lopped off from what is available 
to them, and held aside to be able to pay taxes and insurance.
    That is a very significant one. Certainly, the non-
borrowing spouse provisions have been helpful. And as of 
earlier this week, as has been said, they are going to be more 
helpful. There has been some reduction in some of the ongoing 
mortgage insurance premiums and that has been helpful as well.
    Chairman Clay. Thank you for your responses. And the 
distinguished gentleman from Texas, Mr. Gooden, is now 
recognized for 5 minutes.
    Mr. Gooden. Thank you, Chairman Clay. Ms. Goodman, you 
mentioned in your research that loans assigned by the FHA to 
HUD have a loss rate of roughly 42 percent, compared to 12 
percent when they remain with the original servicer, and some 
of those reasons you mentioned in your research were that FHA 
policies do not maximize the value of properties and servicers' 
incentives in combination with their specialized knowledge 
reduce losses apart from the confusion caused to the borrowers.
    Part of your solution was to allow the original servicers 
to continue servicing the loans, and I was hoping you could 
expand upon that, and also what you would require to make those 
changes?
    Ms. Goodman. I would actually suggest that you allow the 
original servicer to sign the loan to HUD as you currently do, 
but basically, HUD pays the current servicer on a fee-for-
service or another negotiated basis to just continue to service 
the loan. I think actually, some of Peter's numbers were very, 
very interesting. HUD has a policy of not foreclosing, but a 
huge percentage of those homes that it does not foreclose on 
are actually people who have died or moved out of the home.
    What that does is, basically, the home is just sitting 
there deteriorating. So, HUD clearly doesn't maximize. The 
servicers do. The current servicers do a much, much better job, 
so just let them continue to service the loan and pay the fees 
on a negotiated basis.
    Mr. Gooden. Thank you. And your three points to improve the 
program, the last one, your third point, was to redesign 
programs to reduce foreclosure frequency and loss severity. And 
in that, you talked about paying the taxes and the insurance. 
Could you expand upon that?
    Ms. Goodman. Yes, and this actually goes to the heart of 
some of the issues that my colleagues mentioned as well. Right 
now, you have tax and insurance. So actually, FHA made a big 
step forward when they did the financial assessment where, if 
you do not qualify, you actually have to do a tax and insurance 
set-aside. Why not just make that the default? Why not say, no 
financial assessment is required if you are going to agree to 
the tax and insurance set-aside? If you want to go through a 
financial assessment, then we can waive it. So, just change 
what the default is.
    And I thought that was one very valuable option. A second 
very valuable option would be--there is a study by Stephanie 
Moulton and some colleagues at the Ohio State University that 
basically showed that you can cut defaults by as much as 50 
percent if the servicers simply sent out reminders to the 
borrowers, ``Hey, remember to pay your tax and insurance 
payments.'' In terms of cutting loss severity, we just talked 
about allowing the original servicer to continue the service, 
and then also improving the Cash for Keys program could make a 
big difference.
    Mr. Gooden. And Mr. Bell--thank you by the way. Mr. Bell, I 
may have misheard you, but you were kind of talking about how 
everyone is in the same boat. Everyone has to pay taxes and 
insurance, whether you are in this program or not. Do you all 
support those changes that she listed?
    Mr. Bell. Yes. This is the first I have heard of the idea 
of doing away with the financial assessment of people who agree 
to the set-aside. I would have to think that one through a 
little bit more. I think the financial assessment is a useful 
exercise for a prospective borrower to go through because it 
forces them to sit down and look ahead and think about what 
resources they have and what might happen in future years. So I 
am not sure that I am ready to commit yet to that idea, but I 
think it is definitely worthy of thinking through.
    Mr. Gooden. Thank you. I appreciate it, and I yield back.
    Chairman Clay. I thank the gentleman, and I recognize the 
gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of 
our Subcommittee on Diversity and Inclusion. You are recognized 
for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and thank you to our 
witnesses for being here today. I take great pride in being a 
housing expert, spending more than 20 years working in public 
housing, Section 8, and trying to locate affordable housing for 
families and seniors. I have two questions I am going to try to 
get through briefly to allow each of you to have an answer.
    The first question is on foreclosures due to property 
taxes. Last month, I held an affordable housing hearing in my 
district with some 400 people who attended, many elected 
officials, many people like the area commissioner, Mr. Brown. 
Our county treasurer stood up and said that 30 percent of the 
seniors who were losing their homes were not losing them 
because they did not pay their mortgages. They had done 
everything right for the American Dream, but the problem became 
the escalating property taxes on those homes, that they were 
losing the homes because they were being priced out of their 
neighborhoods.
    So when I hear of people losing their homes for not paying 
their taxes, the question becomes, and Ms. Cackley, maybe I 
will start with you--based on your investigation, is there any 
way to know the amount of money that was owed, that resulted in 
HECM termination, in the case of a borrower's default?
    Ms. Cackley. Yes, it is possible. In the data that FHA has 
in their system, we did some looking at the number of defaults 
that were due to less than $2,000 deficit of taxes owed. So it 
is possible to look at the data and find especially those 
people whose amount of default is low enough that they could 
take advantage of some of the programs that HUD does have.
    Mrs. Beatty. So based on that--I'm sorry, but for the sake 
of my time, why are so few borrowers receiving the option to be 
put on a payment plan prior to the default?
    Ms. Cackley. Because HUD does not look at the data enough 
to know and identify that those--
    Mrs. Beatty. So what is the result that we should have for 
these seniors? As part of our hearing today to have experts, 
what do I go back and say to those individuals?
    Ms. Cackley. I think one thing you can say is to let them 
know that these repayment programs and low-cost extension 
programs exist, so that they can ask for them. But I think we 
also have to make sure that the HUD program does what they need 
to do to find those people and offer it.
    Mrs. Beatty. Thank you. Second question, in the FHA's most 
recent report to Congress on the financial status of the mutual 
mortgage insurance fund (MMIF), they reported that the MMIF had 
a capital ratio of 2.76, well above the mandate of 2.0. The 
capital ratio for the forward mortgage portfolio--which is 
overwhelmingly used by first-time homebuyers and minorities, 
African-American households in my district, they just want to 
achieve the American Dream--was 3.93 percent, while the capital 
ratio for the reverse mortgage portfolio was negative -18.3--I 
want the American people to hear that.
    Back in January of 2017, I wrote to Secretary Carson urging 
him to follow through on the previous Administration's decision 
to lower the mortgage insurance premiums for FHA loans, which 
would lower the cost of the mortgage insurance for FHA 
borrowers. This could have saved people hundreds and hundreds 
of dollars a year. So as we know, Secretary Carson overturned 
the Obama Administration's decision citing the financial status 
of the MMIF. My question is, are borrowers who receive a 30-
year mortgage from FHA effectively subsidizing the FHA's 
reverse mortgage program? Ms. Goodman, I want you to answer 
that. And then, Mr. Bell, you are next. You have 10 seconds Ms. 
Goodman, because have to get to Mr. Bell.
    Ms. Goodman. So basically--
    Mrs. Beatty. Yes or no, are they or not?
    Ms. Goodman. I think they should be moved out of the MMIF. 
Leaving them in does a disservice to both programs, as you 
point out. They are very, very different and each program 
should be evaluated, and we should separate the funds.
    Mrs. Beatty. So we should separate the funds?
    Ms. Goodman. We should separate the funds.
    Mrs. Beatty. Yes or no, Mr. Bell, should we separate the 
funds?
    Mr. Bell. Not simple enough for yes or no. Historically--
    Mrs. Beatty. It is my time. Should we separate the funds?
    Mr. Bell. It is not a yes-or-no question.
    Mrs. Beatty. Okay. I'm sorry, my time is up. Maybe somebody 
will yield me some time.
    Chairman Clay. I thank the gentlewoman for her line of 
questioning. At this time, I recognize the gentleman from 
Colorado, Mr. Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. I appreciate you all 
taking the time to be here. When we are talking about 
statistics, we do often talk a out urban areas. I'm a little 
interested in, and Mr. Bell, maybe you could answer this, how 
many of the HECM loans are made in rural America where we have 
an older, poorer population?
    Mr. Bell. I don't know that offhand.
    Mr. Tipton. Okay. Can you maybe educate me a little bit on 
this, what type of loan value is made on the HECM? Let us say, 
I paid my house completely off. It is worth $100,000. What type 
of loan value would be made on something like that?
    Mr. Bell. Okay. I will try to explain this in the time that 
you have available. But essentially, the concept of a HECM is 
that you get an amount of money that is based on your age, the 
value of the home cost, and the interest rate. It is a 
percentage of the value based on your age. A younger borrower 
gets a lower percentage of value than an older borrower, the 
reason being because it is presumed that the younger borrower 
will occupy the home longer so, therefore, more of the value 
needs to be reserved for the interest that will accrue.
    That being said, the amount available probably ranges from 
the high 40s percent for a younger borrower at 62 years old to 
probably approaching the high 60 percent for a borrower in 
their 80s.
    Mr. Tipton. All right. I would appreciate some explanation 
on that. And Mr. Chairman, just to let you know, I did read 
some of your slides that you put up and noted that 9 percent of 
these are repaid totally that are going in, but for loans that 
do not end in a default, how many transactions--if someone can 
answer this--does FHA end up paying in insurance claim on to 
the originating lender? Does anyone know that, when we were 
talking about, maybe some statistics might be something that we 
might want to be able to have as well when we are looking at 
it.
    And I am a little curious, Ms. Goodman, and maybe Mr. Bell, 
you might be able to speak to this, but the HECM program lender 
competition is not very active. We saw Wells Fargo and Bank of 
America drop out, I think about 10 years ago. They never have 
returned. What can we as policymakers do to spur greater 
innovation and consumer choice in the reverse mortgage market 
space?
    Mr. Bell. I think the major banks dropping out of the 
reverse mortgage business is no different than many of the 
major banks dropping out of the mortgage business generally. 
The mortgage business has moved over the past several years to 
be much more dominated by specialty finance companies and non-
bank lenders. Our side of the industry is no different than the 
rest of the industry in that regard. The reasons that the major 
banks, which were MetLife, Wells Fargo, and Bank of America, 
exited the business are different in each case, but they are 
for reasons external to their reverse mortgage activity.
    Ms. Goodman. Just to pick up on one additional point, one 
addition to what Peter said. Yes, they have cut back on both 
forward mortgage programs with FHA and the reverse mortgage 
programs. But I think with the reverse mortgage programs, they 
perceived a great deal of reputational risk in terms of loans 
to senior borrowers. I think you have to realize that the HECM 
program is enormously complex. If I take out a forward 
mortgage, I have two choices: I can choose a fixed or 
adjustable mortgage; and I can choose a mortgage term of 15 or 
30 years, and that is it.
    In contrast, the HECM offers many more options. I can do a 
fixed or adjustable rate. I can do a lump sum, distribution 
line of credit, term annuity, tenure annuity, or combination of 
payment options, and I could determine the timing and pace at 
which the funds can be withdrawn. So this plethora of options 
makes the product more difficult for the borrower to comprehend 
and puts the institution making loans at more risk. And I 
actually think that program simplification, getting rid of some 
of the less used options, would make a big difference.
    Mr. Tipton. Good. Any other comments? Okay, and I guess one 
other area I'm a little bit concerned about is that if housing 
prices dip, and we are in kind of a sweet spot pretty much 
nationwide right now in the housing market, but if those 
housing prices dip, just how resilient will the fund be and 
specifically, how will the home equity conversion mortgage 
market program within the fund operate? Mr. Bell, do you have 
any knowledge on that?
    Mr. Bell. That is the reason for the actuarial analysis 
that is done because HUD has levers it can operate to make the 
program pencil out properly. They can reduce the loan to 
values, we call them principal limit factors. They could raise 
mortgage insurance premiums. So the concept of this is that 
they do make adjustments along the way and certainly they have 
over the years to try and keep the program in check.
    Mr. Tipton. Yes, I think there are certainly some concerns 
that we can have on that when we saw the housing crash before 
and in terms of some of those tables to be able to look at the 
windshield to make sure that we are not putting people in a bad 
position. Mr. Chairman, I thank you for the leniency on time, 
and I yield back.
    Chairman Clay. Thank you. I now recognize the gentleman 
from Washington, Mr. Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman. Indeed, I would like to 
thank you very much for your willingness to hold this hearing 
on what I think is a very important issue. I would also like to 
express my appreciation to Chairwoman Waters for her 
encouragement of us taking up this issue again. I would like to 
thank in particular Ms. Mancini, Mr. Bell, and Ms. Goodman for 
all of your remarks. And in particular, I cannot help but note 
that each of you uses a predicate, the value of this program to 
some people being really important.
    The reasons for that have been alluded to, and Ms. Goodman, 
you did a particularly good job of this, it is about retirement 
security and it is about living in a world in which the number 
of defined benefit programs has fallen off the table. It is 
about living in a world in which 46 percent of households don't 
have $400 savings even to replace the tires on their car should 
they need to be replaced. It is about living in a world in 
which the average retirement account is $60,000, which, 
combined with Social Security, does not provide much of a 
retirement standard of living. And you all said it is a good 
program and here are some things we need to do better.
    But I want to contrast that positive predicate with what we 
went through several years ago, when I had the privilege to 
lead the effort to modernize the second program in which there 
was a lot of the debate around the issue of or the question of 
whether or not we should even have a reverse mortgage program. 
We have come a long way, and we have come a long way, I think, 
because more broadly, people recognize its value in part due to 
some of the changes that we made, in part due to your 
willingness to advocate for it and bring forth additional 
changes.
    And Ms. Cackley, I want to thank you as well. I hope you 
will be pleased to know that virtually every one of the 
recommendations in the GAO report, I will incorporate into the 
next draft of the bill, and we are in the process of doing 
that, as we said.
    Ms. Cackley. I thank you very much. I definitely am happy 
to hear that.
    Mr. Heck. Your work was of value. Now, Mr. Bell, I guess I 
want to start with you because I think it is important to 
remind us of the basics here. This is obviously an important 
financial tool for people who are asset-rich but cash-poor. You 
yourself called it a highly misunderstood instrument in your 
testimony, as I recall. So, I want you to give more color to 
talking about how a HECM loan is distinct from other products 
like home equity lines of credit. And focus on an example of 
someone for whom this particular financial product has benefits 
others don't, and how that might play a role in their life if 
you would please, sir?
    Mr. Bell. I'm sorry, Congressman. I missed part of what you 
said towards the end there but--
    Mr. Heck. You were basking in the glory of my compliments 
of all your--
    [laughter]
    Mr. Bell. The idea of a reverse mortgage versus the other 
types of products like a home equity loan is that it is a loan 
available to people in a time of fixed limited income. And 
being able to either qualify for a loan that has payments is a 
challenge for them or they currently have a loan with payments 
and the challenges are overburdening them. The idea of a 
reverse mortgage is that the money is patient, meaning that it 
waits to be repaid. The borrower can withdraw the money today 
and they could make payments if they want to in order to keep 
the balance down and keep the interest from accruing, but they 
also have the option of not making any payments and just 
deferring those payments until they permanently leave their 
home.
    That has phenomenal impacts on different borrowers in 
different ways. It allows them to not be worried about missing 
a payment on their house and facing foreclosure there. It 
allows them to be able to pay their utilities, pay their taxes, 
pay for their healthcare needs. It allows them to sustain 
themselves in the house for a long time. And if they use a HECM 
with the line-of-credit feature, there is a growth to the line 
of credit over time, so it actually gives them even a greater 
amount of money over the long term than it would if they were 
to draw it all upfront.
    The product has tremendous flexibility, and you know behind 
every HECM, there is a story and a reason why people get it. 
Nobody wakes up in the morning and says, ``Oh, I should get a 
HECM today'', but people do lie in bed at night wondering, 
``How am I going to make my payments? How am I going to fix the 
roof? Where are we going to get the money to visit the family 
at Christmas?'' And the HECM is used as a solution to all of 
these kinds of things.
    Mr. Heck. Well said, sir. I am out of time, unfortunately. 
I yield back, Mr. Chairman.
    Chairman Clay. I thank my friend from Washington, and I 
recognize the gentleman from Wisconsin, Mr. Steil, for 5 
minutes.
    Mr. Steil. Thank you very much. I appreciate the Chair 
holding today's hearing on this important issue. A reverse 
mortgage can be really helpful to allow seniors to live 
comfortably in their homes, in the communities where they have 
built their lives. At the same time, we have a responsibility 
to ensure that people who have worked hard their whole lives 
are not taken advantage of and misled through steps to secure 
their retirement. My district has roughly 113,000 seniors, 16 
percent of the population. I think we owe it to them and to 
seniors across the country to conduct proper oversight of this 
program and to implement forms to continually make it better.
    Dr. Goodman, among other requirements under the Federal 
Housing Administration guidelines for HECM loans, borrowers 
must demonstrate the ability to pay property taxes and 
insurance and participate in counseling. I would like to focus 
a little bit on what is done on the front end to make sure 
seniors who participate in this program are able to meet all of 
their obligations to remain in their homes. I recognize that 
some of these requirements began to be implemented in 2015. Can 
you comment if there has been a noticeable difference in 
performance since that time?
    Ms. Goodman. Yes, there has actually been a huge, huge 
difference in performance as a result of the financial 
assessment. There has been a study that basically showed that 
the tax and insurance defaults for mortgages that were 37 to 45 
months old have declined from 6.9 percent before the financial 
assessment to 2.1 percent. It has made a tremendous difference 
and it was a very, very positive change.
    Mr. Steil. Can you provide a little color for those of us 
on the committee as to what this counseling looks like, how it 
is conducted, is it intensive, are there follow-up sessions? 
Can you provide a little color to that?
    Ms. Goodman. Basically, there is a counseling session. The 
counseling could be improved, and I think that suggestion has 
come up, and then there is also a financial assessment where 
you look at the borrower's ability to pay the tax and 
insurance, and make a determination as to whether or not there 
should be a set-aside. I think the power is in that financial 
assessment test. And I would actually go a step further, and I 
would actually require I no financial assessment, automatic 
set-aside. That is the default, and if you want to opt-out of 
the financials--if you want to go through a financial 
assessment, then you can possibly get that feature waived.
    Mr. Steil. But let me go back to the counseling session. 
Could you just describe what that would look like or the amount 
of time or how intensive that is for individuals who go through 
this counseling?
    Ms. Goodman. I am going to actually--
    Mr. Steil. Or somebody who has color--
    Ms. Mancini. I am happy to chime in on this.
    Mr. Steil. Thank you very much.
    Ms. Mancini. For the counseling session, the amount of time 
varies. Unfortunately, sometimes there are only 30 or 45 
minutes allotted, but it really requires at least an hour and a 
half. The counselors are supposed to walk through with the 
homeowner alternatives that they should consider such as energy 
assistance, and other programs that are available to help low-
income homeowners, and then explain how a reverse mortgage 
works, which is pretty complicated in itself, the different 
options for how to receive the proceeds of the loan, the 
property charge set-aside now that is involved. So, there are 
many things they have to cover.
    Mr. Steil. There is an opportunity to really expand the 
amount of time and intensity in these counseling sessions for 
seniors to make sure that they are making the best decision in 
their own best financial interest and a reasonably complicated 
financial product that has real significance in their lives.
    Ms. Mancini. Yes, Congressman. We think that would be very 
helpful.
    Mr. Steil. Thank you. I would like to go back to Dr. 
Goodman. In your testimony, you recommended streamlining the 
process for converting a forward mortgage into a reverse 
product. Can you discuss some of the regulatory hurdles that 
would make that conversion unnecessarily complex?
    Ms. Goodman. If it is an existing FHA mortgage, it should 
be a little bit easier to deal with. And if it is outside the 
FHA market, you clearly need a new appraisal and all that. The 
advantage is that it would be a much simpler structure, it 
would be a one-time draw, which investors should like, and it 
would save on sort of marketing costs. Look at the number of 
younger seniors who have mortgages, and it is just so different 
from what used to be the case.
    Mr. Steil. I appreciate that. I appreciate everyone's 
testimony here today, and I yield back.
    Chairman Clay. I thank the gentleman from Wisconsin. And at 
this time, the Chair of the full Financial Services Committee, 
the gentlewoman from California, Chairwoman Waters, is 
recognized for 5 minutes.
    Chairwoman Waters. Thank you very much, Mr. Chairman. This 
is a very important hearing you are leading here today, and I 
have to tell you there have been years when I have been 
ambivalent about the program, knowing full well that we needed 
something to deal with the safety and security of our seniors, 
and their ability to stay in their homes and age in their 
homes, and recognizing that there is a great need and there is 
a possibility for achieving those goals.
    And at the same time, I have heard many stories about 
problems that have arisen in the program, and that may have 
been discussed already. I am sorry that I was a little late 
coming in, but I want to ask about foreclosures and how seniors 
end up with foreclosures in the HECM program? I basically want 
to know why this program that was intended to help the elderly 
stay in their homes, stay in their place, why do we have these 
ongoing concerns about default and foreclosure rates that leave 
seniors vulnerable to foreclosure and housing instability?
    The GAO report released earlier today found that 
foreclosures due to barred default increased by 16 percent 
between funding year 2014 and 2018. And I need someone, perhaps 
Ms. Mancini, to describe some of the reverse mortgage cases you 
witnessed when you worked with NCLC and the Atlanta Legal Aid 
Society, that will help us understand why foreclosures are 
increasing in a program that is intended to promote housing 
stability for seniors? Can you help me with that?
    Ms. Mancini. Thank you, Chairwoman Waters, and thank you 
for your leadership on these issues and for the discussion 
draft of your bill, the Preventing Foreclosures on Seniors Act, 
which would be extremely helpful. And I also want to thank 
Congressman Heck for his co-sponsorship of that bill. It is, as 
I mentioned, extremely important.
    What I see in my work with low-income homeowners is that 
unfortunately, many of the reverse mortgage borrowers who are 
facing a foreclosure based on property charges are not able to 
get a repayment plan or other loss mitigation options because 
servicers say we are not going to consider loss mitigation 
because we are not required to do so, and we are worried about 
being financially penalized if we do not foreclose fast enough. 
So, making loss mitigation mandatory is critical.
    And unfortunately, many elderly homeowners are being forced 
into bankruptcy, or worse, losing their home altogether because 
they cannot access a repayment plan.
    Chairwoman Waters. I thank you for that explanation, and I 
want you to know that Mr. Heck has been working on this issue 
for a long time in different ways. I believe that it was one of 
his first bills when he came into the House, working on this 
issue. I am so pleased to be working with him to deal with 
this.
    There is one other thing that I would like to say. In 
addition to the work that we are doing to ensure that, whether 
it is taxes or other kinds of fees or amounts that are needed, 
sometimes we have--and this happens too often--seniors in this 
program and one dies, and usually, it is men because women live 
longer, and the mate is left who now may be entering into 
dementia. They don't know, they cannot keep up, and sometimes 
they do not have the help, they do not have the assistance. We 
have yet to have the resources that we need to deal with our 
aging seniors who are entering into this part of their lives.
    And of course, those sums are going to back up, and I am 
hoping that we can prevent that in the way that we are 
approaching this, but I am still worried about whether or not 
we have programs in place to be sure that we can give 
assistance to aging seniors who may be suffering from 
Alzheimer's or dementia. So, it is a worry that we have.
    Ms. Mancini. Chairwoman Waters, I think that is a very 
important issue and it relates to the servicing of these 
reverse mortgages. Unfortunately, currently, the servicing 
practices are not clear enough. The letters are written in 
language that is so opaque and difficult to understand, even 
for someone who is not experiencing cognitive decline or other 
mental health issues. Many seniors do start to experience 
cognitive decline or other disabilities as they age and so we 
need a servicing approach to reverse mortgages that addresses 
that problem, and it is very important.
    Chairwoman Waters. I do not know if our bill covers that 
problem. I think that goes beyond what we had envisioned 
certainly, and what we are attempting to do. I think we would 
have to think further and try and think about, if a servicer is 
able to identify that there is a problem, and we had some way 
to check on that rather than going into foreclosure, maybe we 
need to think about that even more and see what we can do.
    Otherwise, like I said, there have been years when I have 
been concerned about the program and wondering whether or not 
it was doing what it was supposed to do. And again, let me 
reiterate that I do recognize that it has value, and it has 
value that must be protected and value that must be extended so 
that we make sure that we are providing the kind of safety and 
security that our seniors need and deserve. Thank you. Thank 
you, Madam Chairwoman, and I yield back the balance of my time.
    Ms. Tlaib. [presiding]. Thank you. Thank you, Madam 
Chairwoman. The gentleman from Tennessee, Mr. Rose, is 
recognized for 5 minutes.
    Mr. Rose. Thank you, Madam Chairwoman. One of the concerns 
I have is that in Congress we tend to wait until there is a 
crisis to act. I worry that we are not doing enough now, when 
times are relatively good, to address some structural problems 
with major programs because we have been lured into a false 
sense of security. Dr. Cackley and Dr. Goodman, should 
Congress, and HUD for that matter, be concerned with the 
general health of the FHA's Mutual Mortgage Insurance Fund if 
the economy wasn't as strong as it currently is? Could you each 
address that?
    Ms. Cackley. It is always important to pay attention to the 
fund and to be--I think Mr. Bell had referred earlier to the 
fact that there are things, changes that can be made in order 
to be forward-thinking and pay attention to how the fund 
changes as the economy changes, especially as the housing 
market changes. So, that is absolutely a part of what both 
Congress and HUD need to do.
    Ms. Goodman. I actually believe very strongly that the 
forward fund and the reverse fund should be separated, and that 
is something that Congress should be able to do. They were not 
together until 2009. They are two very, very different 
programs. The reverse program helps seniors tap into home 
equity. The forward program provides financing to millions, 
primarily first-time homebuyers.
    The reverse program is very, very volatile. It is very 
difficult to estimate the value. Small changes in assumptions 
about interest rates or in terms of home price depreciation can 
make a huge difference in the value. I would actually suggest 
that the programs be separated and that the reverse program be 
a program with mandatory Appropriations and not part of the 
MMIF.
    Mr. Rose. If housing prices dip, how resilient is the fund 
and the products placed within the fund, and maybe you have 
already spoken to that, Dr. Goodman, and what recommendations, 
aside from the one that you have already made, would you make 
to Congress to improve the resiliency of the fund?
    Ms. Goodman. I am not sure, when you look at the numbers 
now, they oftentimes don't make sense for this fund, so I am 
not actually sure that we have the baseline right now to even 
estimate what the effect of home price depreciation would be. I 
think it is just a very difficult set of problems because I am 
not sure we have the baseline right, I am not sure we have the 
information--we certainly have not tabulated the information. 
There are a lot of program improvements that could cut losses 
substantially and we have not implemented those. So, I am not 
sure I know how to answer your question.
    Mr. Rose. I am thinking about an ad shown during one of the 
TV shows I enjoy, with an actor who made shows back in the 
1980s, and he says, ``Our reverse mortgage is too good to be 
true.'' From the standpoint of the Federal Government, they may 
be too good to be true. Is that a fair assessment, Dr. Goodman?
    Ms. Goodman. I am not sure what you mean by ``too good to 
be true.''
    Mr. Rose. So, what you are telling me is the program is not 
working? It is not working for taxpayers presently. Is that--
    Ms. Goodman. I think we do not know how well or how poorly 
it is working for taxpayers because I think it is so 
assumption-driven and there is a wide range of estimates and 
minor differences in interest rates for 30 years or home price 
depreciation for 30 years, or how much less home prices on 
homes for seniors depreciate versus the general population can 
make huge, huge differences in evaluations. So, I am not 
convinced that we have a handle completely on the base case. 
That said, there are a lot of program improvements that we have 
talked about that can cut losses substantially, and I think you 
are supposed to look at those. I think it is a great program 
and it should be improved.
    Mr. Rose. Another issue with HECM that concerns me is that 
I am not sure borrowers fully understand what they have signed 
up for when they take on a reverse mortgage, and I think we 
have already heard you speak to that. Dr. Goodman, this past 
May you published a blog post in which you said that when 
servicers keep the loans that cannot be assigned, the losses 
are much lower than those incurred on assigned loans. Why is 
that?
    Ms. Goodman. In large part, it is because HUD does not 
foreclose, and in a very large percentage of the cases, it does 
not foreclose. The borrower is gone or moves from the property, 
so the property is just sitting there deteriorating.
    Mr. Rose. Thank you. I yield back.
    Ms. Tlaib. The gentleman from Florida, Mr. Lawson, is 
recognized for 5 minutes.
    Mr. Lawson. Thank you, Madam Chairwoman. It is a privilege 
to see you sitting in the chair. I welcome the witnesses to the 
committee and I am really glad to have you all here to educate 
me because you are all knowledgeable about this. And I ask this 
question based on several things: Which value do they use to 
give loans for these houses? Is it the assessed value or the 
market value?
    Ms. Mancini. Congressman Lawson, the value is based on an 
appraisal that has to be done at the time the loan is made.
    Mr. Lawson. Okay, because most of the time, this is a loan 
that the homeowner wants so that they can pay a little tax 
thing, but the houses in the area might be at a higher value. 
When they are doing the appraisal, do they look at what the 
houses are valued in the area or do they go specifically back 
and say, this is what the assessed value has been for the last 
couple of years?
    Ms. Mancini. It is supposed to be a fair market value based 
on comparable sales in the area. So, it is not related to the 
tax assessed value.
    Mr. Lawson. Okay. Since there is a high degree of 
foreclosures in communities of color, I received a call some 
time ago where, and I don't know whether I can explain it 
appropriately to you, but time had run out in terms of the 
amount of funding that person had because I guess the person 
lived longer than the mortality tables stated that they were 
going to live. And the family was worried about them being put 
out of the residence because there were no more resources 
coming in. How is that really handled? Does it make sense, what 
I am saying?
    Ms. Mancini. I think I understand, Congressman. When a 
person exhausts what is available in the line of credit of the 
loan proceeds, they can still continue to remain in the home. 
As long as the borrower is living in the home, there may be an 
issue if it is a non-borrowing spouse, but I think that has 
been addressed but they can still remain in the home. As long 
as they pay the property charges, they should not have to 
leave, if I understand the question.
    Mr. Lawson. Would anyone else care to comment on this?
    Ms. Mancini. I think the only concern would be if the 
person really has run out of resources, then paying those 
property charges could be a problem, and I think that is 
actually part of the issue with the default that you see. It is 
that people on a fixed income may not be able to continue to 
pay property charges as they age.
    Mr. Lawson. The other question would be, who takes 
advantage of the interest deduction through the IRS? Mr. Bell?
    Mr. Bell. There are interest deductions--well, let me back 
up, an individual taxpayer is a cash basis for purposes of 
taxes. So when the interest is actually paid, is when you could 
take that interest deduction. If a reverse mortgage borrower 
chooses to make payments on a current basis, if they decide at 
the end of each year, I am going to pay down the interest that 
has accrued on the loan this year, then the taxpayer would be 
able to take that interest deduction at that time. If they 
defer the payment and say, I am just going to draw it down, the 
interest will accrue, and I am not going to pay it back until I 
leave the house, then that interest deduction would be 
available at the time that it is paid.
    For instance, if a taxpayer has a lot of interest accrued 
over time because they live in the house with a reverse 
mortgage, then they sell it and move, the year that they sell 
and move, they would be able to take that deduction. If they 
pass away, that interest deduction would be a State issue, and 
I am not that familiar with the State handling of the 
individual mortgage interest deduction.
    Mr. Lawson. Okay. And I am going to try to get in one other 
question to Ms. Goodman. Ms. Goodman, there are a lot of 
commercials on television about reverse mortgages, and earlier 
you talked about all of the companies like Metropolitan, all of 
these companies that pulled out of the market. Could you tell 
me again why they pulled out of the market?
    Ms. Bell. Why the banks pulled out of the market?
    Mr. Lawson. Right.
    Ms. Bell. Yes. MetLife is an insurance company, it acquired 
a bank and operated a bank for a while, and it is a global 
insurance company, and they found that they were becoming 
subject to Federal Reserve requirements that would have had 
them make disclosures in a different time schedule than they 
would as a company that wasn't a bank because of the Federal 
Reserve requirements. So, they basically spun off their bank 
and exited mortgage banking in the U.S. entirely, and reverse 
mortgages and all of that.
    Bank of America made a strategic decision at one point to 
shed a number of lines of business that were not their major 
areas of business, and they shed the reverse mortgage business 
along with that. They are still engaged in the secondary 
marketing side, on the securitization side, they are just not 
originating reverse mortgages.
    Mr. Lawson. My time has expired, so I yield back.
    Ms. Tlaib. The gentleman from Missouri, Mr. Luetkemeyer, is 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman. By the time 
we get to me, a lot of questions have already been asked, so I 
have some questions to sort of fill in the blanks for me with 
regards to issues that you brought up, but I would like some 
more information, so bear with me for a moment. With regards to 
the losses that are sustained by the Federal program--I see 
here that the maximum claim amount is $111 billion, and the 
losses last year totaled about $5.6 billion, which is roughly 
5.1 percent.
    Is that roughly what the program lost last year, do any of 
you know? Nobody knows? Okay. Quick question for you here, with 
regards to when somebody takes out a loan, I assume that we do 
an appraisal on it. What is the maximum loan-to-value that 
somebody can get on a loan? In other words, I am assuming that 
you cannot loan 100 percent or borrow 100 percent alone.
    Mr. Bell. I explained this earlier.
    Mr. Luetkemeyer. I was here, but I did not hear it, sorry.
    Mr. Bell. In any case, you get a percentage of the value 
based on your age, and the concept is that you extended a 
percentage of value with the balance being reserved to cover 
the future interest accrual. So if you are younger, you would 
get a lower amount, because presumably, you would occupy the 
home longer so interest would accrue over time.
    Mr. Luetkemeyer. Yes, I got that part. Knowing that you 
appraise it that way, is there a built-in fudge factor though, 
just like any other home loan that you would get so that you 
would have 5 percent, 10 percent, or 20 percent down. And what 
you are trying to do is go to this--my question is that, when 
you figure out the amount that somebody could get, borrow up 
to, is there a fudge factor in there that doesn't include your 
interest that goes up to this factor? If you play the market, 
in other words, if the market goes down or a home deteriorates 
because nobody is living in it, you have some space there.
    Mr. Bell. First of all, lenders do not determine how much 
money they make available to borrow, FHA does. FHA publishes a 
table called the Principal Limit Factor table and it has for 
every age and every possible interest rate a percentage of 
value that would be advanced, that would be able to be advanced 
to that borrower.
    Mr. Luetkemeyer. So we don't put in a buffer there?
    Mr. Bell. No, I believe FHA does in that. The idea is that 
you are trying to, if I had a blackboard I maybe could show you 
easier--
    Mr. Luetkemeyer. But what you are trying to tell me is that 
they can borrow enough money up to a certain point that they 
believe as a person ages, they will be able to max out to a 
certain point. My point is, is there a fudge factor there that 
plays in? At some point, that you would go up to this point, 
but there would still be some equity left to cover the mortgage 
holder in case the market goes down or the home deteriorates. 
Your answer apparently is, there is not, though, is that 
correct?
    Mr. Bell. No, I didn't say that.
    Ms. Mancini. Congressman, may I contribute here? I think 
that FHA tries to set the loan limits conservatively enough to 
allow for the issue that you are discussing. They are trying to 
factor in the way people will age, but they are assuming home 
price depreciation over time, understanding there may be some 
dips.
    Mr. Luetkemeyer. Okay. Thank you. With regards to 
disclosures, what kind of disclosures are made? When a person 
takes out a normal home loan, you literally have a package that 
is this thick. We had a gentleman here one time who was from 
the credit union folks and he actually had a loan packet that 
was 7 inches tall. He said, ``Congressman, we no longer measure 
by the inch, we measure by the pound.'' What kind of 
disclosures are involved with regards to reverse mortgages for 
the borrower?
    Ms. Mancini. There is a pretty big stack of documents that 
have to be signed at closing.
    Mr. Luetkemeyer. The same amount of documents as somebody 
taking out--
    Ms. Mancini. I would say it is probably pretty similar to a 
forward mortgage.
    Mr. Luetkemeyer. Okay, so you have truth in lending and all 
that sort of stuff?
    Ms. Mancini. Yes, Congressman, truth in lending applies.
    Mr. Luetkemeyer. Okay, very good. A while ago, we were 
talking about the percentage of loans--I think, Mr. Bell, you 
commented that there were different reverse mortgage lenders 
who got out of the business. And so my question is, what 
percentage of the loans are made now by non-bank or non-FHA 
borrowers?
    Mr. Bell. The large majority of the business, the loans 
originated by non-banks, I don't know the exact percentage.
    Mr. Luetkemeyer. Okay. What kind of oversight do we have 
over those folks? If it is made by non-banks, do they hold 
those in, or do they still go to FHA with them?
    Mr. Bell. Typically, the loans made are FHA-insured and 
then they are sold in the secondary market via Ginnie Mae--
    Mr. Luetkemeyer. Even by non-bank folks?
    Mr. Bell. There are issuers that have been approved by 
Ginnie Mae to issue what we call HECM Mortgage-Backed 
Securities (HMBS), and the large majority of HECMs are now sold 
in the secondary market in a--
    Mr. Luetkemeyer. For their non-bank entities out there that 
hold themselves?
    Mr. Bell. They are non-bank entities that issue the HMBS 
securities, and it is the purchasers of those securities that 
are basically the owners of the loans.
    Mr. Luetkemeyer. Okay, my time has expired. Thank you.
    Ms. Tlaib. Thank you. I now recognize myself for 5 minutes. 
Thank you all so much for being here and for your credible 
advocacy. One of the things I think is really critical is just 
representing a community where we have seen so much more--I 
think we are the State that lost more Black home ownership than 
any other in the country. We have seen a shift in the City of 
Detroit--I was born and raised in Detroit--from more homeowners 
to renters and so forth, and I think it is a result of a lot of 
combinations of things that you guys put forward. I do 
appreciate you all educating us, but also continuing your 
effort and putting good policy proposals forward.
    I want to tell a story from my district, because I think it 
is important to kind of re-center us with what is at stake. 
Ella Mae at Edmondson Purnell is a senior in my district who is 
on Social Security income. She gets $988 a month. In 1999, she 
took out a Federal loan, a reverse mortgage, with a company 
called Financial Freedom. She needed repairs to her home, 
literally, rain was coming into her bedroom, and no 
qualifications were really necessary. I am not sure what kind 
of disclosures, but she had no idea that part of the agreement 
that she signed was that when she dies, instead of it going to 
her family members as an inheritance, that they would foreclose 
on it and take complete ownership of the home.
    Again, without fully understanding, but she is just 
devastated. Across the nation, I think our seniors are facing 
foreclosures after taking out reverse mortgages, as we have 
been hearing about today, either because they fell behind in 
property taxes, as is the case in my district, or they failed 
to meet the requirements of very complex mortgage loans, yet 
HUD lacks detailed data on how many homeowners have actually 
lost their homes or are facing foreclosure. We have seen like 
$200,000 homes being foreclosed for small $500 property tax 
bills, again, in my district. So, Ms. Mancini, can you talk 
about the kinds of cases that your organization deals with all 
the time, and why it is so crucial that HUD changes its policy 
to require loss mitigation?
    Ms. Mancini. Thank you, Congresswoman. The issues are very 
serious, as you have pointed out, and I think that the number 
of older borrowers who are facing foreclosure on a reverse 
mortgage because of a property charges default has grown to the 
point where we need critical attention on this issue. I see in 
my office on a daily basis, people who are struggling to get a 
repayment plan or an extension of the foreclosure deadline for 
health circumstances, and oftentimes, the servicers refuse to 
offer those options because they are not required to, and they 
are just worried about being penalized by HUD for not for 
closing fast enough. We need HUD to make loss mitigation 
mandatory. We also need them to allow for more flexibility in 
the different loss mitigation options so that older homeowners 
are not forced into bankruptcy or the loss of their home.
    Ms. Tlaib. Thank you. According to the Grand Valley State 
University in Wayne County--I am literally the only Member of 
Congress, I think, who has all of her communities in one 
county, I believe, which has 12 different communities--we have 
the highest reverse mortgage foreclosure rates that we have 
ever seen between 2013 and 2017.
    Today, Detroit, for instance, has 5 ZIP Codes that are 
amongst the top 17 ZIP Codes across the country, and this is a 
majority-Black city, a total of 85 percent. Ms. Goodman, do you 
believe that these organizations aggressively market to 
communities like mine, including the impact of using celebrity 
endorsers to target minority borrowers?
    Ms. Goodman. The answer is, we don't know. And let me 
actually give you a more complete answer. Basically, reverse 
mortgage borrowers tend to have lower incomes, less than half 
of those who take advantage of equity extraction vehicles. They 
tend to have much, much lower credit scores by more than 50 
points. They have more debt that is more than 60 days past due. 
So, it is basically that these are borrowers who have no other 
options, and unfortunately a disproportionate number of Black 
and Hispanic households are in that category. In addition, 
Black and Hispanic borrowers tend to have a larger proportion 
of their net worth in their home, making them more apt to be 
reverse mortgage borrowers.
    Home equity plays a much larger role in the net worth of 
Black and Hispanic households at 64 percent and 70 percent 
respectively, than it does for white households. I have not 
seen a study that adequately differentiates the reality that 
minority borrowers are more apt to be disproportionate users 
and target those who are apt to benefit from the program to 
explicitly targeting minorities for the program.
    Ms. Tlaib. Last question: How could you apply disparate 
impact and create better policies that would help our seniors?
    Ms. Goodman. I think you really need to figure out what is 
going on here and better data would help a lot.
    Ms. Tlaib. Thank you. The gentleman from Ohio, Mr. 
Gonzalez, is recognized for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and 
thank you, everybody, for your testimony and attention to this 
important issue. Reverse mortgages are an important financial 
product for many of our seniors, including many in my district. 
So I want to make sure the product works well and how it is 
supposed to work but also that the liability on the American 
taxpayers is well understood. Ms. Goodman suggests separating 
the funds, which makes no sense to me, and I think shores up 
the financial integrity of the system, and I think the better 
data component could add to the operational side, which I think 
is very important.
    Ms. Goodman, I will start with you. I understand that HUD 
does not collect a significant amount of data on this program 
and that to me seems essential to judge its worth. If HUD were 
to collect more data on the front end, as well as the 
termination of foreclosure of a reverse mortgage, which do you 
think would be most useful?
    Ms. Goodman. I actually think HUD collects a fair amount of 
origination data. And I think I would defer to the GAO on 
exactly what additional information is needed. What is totally 
lacking is performance data. They actually used to produce 
performance data until about 2011 and then abruptly stopped.
    The performance data should include exactly what was 
foreclosed upon, how it was resolved, what the resolution was, 
how to link with the property to the tax and insurance tax and 
insurance. But actually releasing that performance data, and I 
don't know what they collect and what they don't collect, but 
releasing it would be just extremely helpful.
    Mr. Gonzalez of Ohio. Thank you. And then, Ms. Cackley, in 
your testimony you highlighted that the FHA does not analyze 
data for purposes such as determining which HECM servicers and 
lenders received the most complaints, targeting entities for 
on-site review, or identifying topics that may need additional 
borrower education. Can you discuss, in your opinion, how FHA 
could go about better collecting consumer complaints and how 
the data could be used to improve service?
    Ms. Cackley. Certainly. FHA does collect some complaint 
data, but they don't do very much with it. They do not collect 
it in a way that allows them to analyze it. So, the first thing 
is to better organize and collect data that is most useful. 
They also should have--they have access to complaint data from 
the Consumer Financial Protection Bureau (CFPB), but they do 
not leverage that data, and that is also information that could 
be very useful to them.
    Mr. Gonzalez of Ohio. So, better organization, and be more 
thoughtful about their data. And my last question, Ms. Goodman 
is, in July 2019, you and your co-authors at the Urban 
Institute published a paper entitled, ``FinTech Innovation in 
the Home Purchase and Financing Market'', in which you made the 
argument that FinTech innovation is changing the way households 
buy and sell homes, obtain and manage mortgage debt, and 
monetize housing wealth. You also argued that housing is also a 
huge source of untapped wealth for U.S. homeowners, and that 
companies such as EasyKnock, Figure Home, and Tap and Patch 
Homes have made it easier to cash out home equity to help 
households smooth their consumption, figuring to offer a 
reverse mortgage alternative where borrowers can sell the home, 
receive cash proceeds, and stay in the home as renters.
    These FinTech innovations offer great potential options to 
seniors looking for options above and beyond HUD's HECM 
program, but they are nascent developments in a market 
dominated by the government-insured product. What has so far 
held back the development of a private technology-based reverse 
mortgage market, and what more can be done by HUD and 
policymakers to encourage more innovation development and 
private sector competition?
    Ms. Goodman. With the products that we talked about, fairly 
niche products, you can rent your home until you can basically 
sell your home now, or you can live there for the rest of your 
life, but they are fairly niche products that don't have a lot 
of traction. One thing that is gaining a fair amount of 
traction is private reverse mortgage products. Although they 
are very, very, very small, certainly lowering the loan limits 
from the current level of $726,525 nationwide would make a big 
difference in terms of the development of the proprietary 
reverse mortgage products, which are actually filling a unique 
niche right now.
    Right now, for example, condos are disproportionally--are 
almost entirely proprietary products. Issues of, first, loan 
limits for the HECM program are very, very high, and second, 
some State laws actually prohibit or make it very difficult for 
priority reverse mortgage products. I think if the loan limits 
were reduced, these States would be forced to revise their 
laws.
    Mr. Gonzalez of Ohio. Thank you very much for your time, 
and I yield back.
    Ms. Tlaib. The gentleman from Missouri, Mr. Cleaver, who is 
also the Chair of our Subcommittee on National Security, 
International Development and Monetary Policy is recognized for 
5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman, and I really 
think this is an important hearing. I think there are probably 
nine of us on this committee who were here on the day that we 
were informed by Ben Bernanke, Henry Paulson, and Sheila Bair, 
and it was one of the most awful days of my political career. 
And I am always paranoid about what could happen afterward and 
one of the fears is of course what we have been talking about, 
and that is what happened to minorities. We had individuals who 
publicly, right in this committee, said that there was great 
intentionality in targeting Brown and Black individuals to 
victimize.
    And these were people in the lending community who 
acknowledged what happened with a lot of these exotic products 
and telling people you could buy a $100,000 house, even if you 
were working for a yellow bus company making $15,000 a year. 
And that is a real example. So, you know where we are today, 
trying to figure out how to handle the reverse mortgages and 
what is happening also again in predominantly minority 
communities that have been targeted. And USA Today says 
foreclosures of reverse mortgages disproportionately impact 
these minority communities. What is it that is being done that 
would allow this targeting to occur? Can any of you respond, 
please?
    Ms. Mancini. Congressman, I think that the USA Today 
article you referred to does suggest that there may have been 
some deliberate targeting of communities of color, but I think 
another factor that we believe is at play is that the history 
of disinvestment from those communities, the lack of access to 
good mortgage credit, followed by targeting of abusive subprime 
mortgages that you referred to earlier then made those 
homeowners more likely to need reverse mortgages. A lot of 
older homeowners refinanced into a reverse mortgage to get out 
of trouble on a bad subprime loan.
    We believe that is one of the factors that has led to a 
large number of reverse mortgages in communities of color 
because of the abuse of subprime practices that were targeted.
    Mr. Cleaver. One of the things I will be eternally angry 
about--my youngest son saw the movie about what happened, I 
forgot the name of the movie about the collapse, and they had 
all of this in the movie. My son went to see the movie, and he 
came out and said, ``I hate all of you. You know what is going 
to happen.'' And I had to look him in the eye and say nothing, 
because as of today, nobody has been prosecuted. If you steal 
some potato chips from 7-Eleven, you go to jail. If you steal 
$20 billion from the public and send people to the poor house, 
you go to Bermuda to play golf.
    I am telling you things you already know, but what can we 
do to prevent this from continuing? In minority communities, 
the house is the most valuable product you have, and no 
savings. This is it. This is my wealth built into this house. 
What can we do to stop this, make sure it doesn't happen again?
    Ms. Goodman. Let me take the first stab at it, if you don't 
mind, and that is, right now we do a financial assessment of 
the borrower, and at the end, if the borrower can't afford tax 
and insurance payments, which is one reason for default, then 
there is a tax and insurance set-aside. I would actually not 
have a financial assessment. I would make that the default. 
There is a tax and insurance set-aside unless you opt for a 
financial assessment, and you pass, in which case you can 
choose not to have that set-aside. But what that would do is 
make sure that the tax and insurance payments are escrowed and 
taken care of.
    Mr. Cleaver. Ms. Cackley?
    Ms. Cackley. I would just add that that that is a solution 
going forward, but right now you have a lot of reverse 
mortgages that are in effect, so FHA needs to have oversight of 
this program. They need to have oversight of the servicers. 
They need to be making sure that the servicers are offering the 
kinds of repayment plans and extensions that are available in 
the way the program is designed but they are not necessarily 
making it to the people who can benefit from them. And that is 
something that FHA can do.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Ms. Tlaib. Thank you. I would like to thank all of our 
witnesses for their testimony today.
    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 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is adjourned.
    [Whereupon, at 3:41 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           September 25, 2019
                           
                           
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