The Congressional Budget Office (CBO), an agency within the legislative branch that provides budgetary and economic information to Congress, published a report last week that presented four policy solutions for mitigating risk in the Home Equity Conversion Mortgage program.
The policies discussed in the report – titled The Role of the Federal Housing Administration in the Reverse-Mortgage Market – are just recommendations for Congress to consider if lawmakers decide that further changes to HECM are needed to protect FHA’s insurance fund. The proposed changes include:
- Converting the HECM program to a direct loan program, in which the government would fund reverse mortgages itself rather than guarantee loans funded by private lenders;
- Reducing the amount of a loan’s outstanding balance that FHA guarantees to repay lenders by requiring lenders to sell (or “assign”) an active HECM to FHA earlier than they generally do under current policies (specifically, reducing the loan balance that triggers the option for lenders to assign HECMs);
- Sharing the risk of losses with lenders by requiring them to hold on to an active HECM much longer than they typically do now before assigning it to FHA; and
- Slowing the growth of the funds available to a borrower who does not draw the full amount of a HECM initially.
Download the full report to get more details on these proposals.