The Department of Housing and Urban Development’s (HUD) annual budget proposal for fiscal year 2017, released Tuesday by the Obama Administration, shows continued promise in the agency’s reverse mortgage book of business.
The eighth and final budget issued by President Obama, the FY 2017 Budget proposes a $4.1 trillion spending plan over the course of the next fiscal year, beginning October 1, 2016.
For HUD, the President’s Budget provides the agency with $48.9 billion in gross discretionary funding and $11.3 billion in new mandatory spending over the next decade targeted efforts such as rental assistance, homelessness assistance, supporting tribal communities, investing into communities to improve housing affordability and revitalize high-poverty neighborhoods.
“HUD’s proposed budget was built on the values that we uphold as Americans. That our entire nation benefits when our children grow up in a community that’s full of promise, not problems,” said HUD Secretary Julian Castro in a prepared statement.
In total, HUD’s proposed budget for FY 2017 represents a $1.9 billion increase over the enacted funding value from FY 2016, according to Secretary Castro during a press call Tuesday afternoon.
As for the Home Equity Conversion Mortgage (HECM) program, the budget indicates HUD expects continued positive cash flow for fiscal year 2017.
Breaking down the Federal Housing Administration’s Mutual Mortgage Insurance (MMI) Fund, which comprises FHA’s single-family mortgage portfolio and the HECM book of business, the HUD budget projects a guaranteed loan subsidy rate of -0.33% for the HECM portfolio.
A positive subsidy rate would indicate the program is projected to generate negative cash flow, or a loss. So while last year’s budget projected a subsidy rate of -0.69%, the HECM portfolio in 2017 is expected to generate slightly less positive cash flow than it did according to the previous fiscal year’s projections, however, HUD remains confident in the program’s strength.
“This [HECM] is something we’ve monitored closely over the years,” Castro said in response to a question from RMD during Tuesday’s media call. “We are pleased with the legislation that has helped out the HECM portfolio. It’s something we believe that, when used appropriately, can be a net benefit for older Americans.”
Last November, a $7.9 billion increase in the economic value of the HECM portfolio propelled the MMI Fund to a $19 billion gain in FY 2015, according to FHA’s most recent Actuarial Report. The positive performance even garnered applause from HUD.
“In our last MMI Fund report, the HECM portfolio did much better than the year before and helped drive us across the 2% capital reserve ratio,” Secretary Castro told RMD. “We continue to believe this is a portfolio that can work and we believe it can continue to perform strongly.”
For 2017, HUD’s budget requests a limitation of $400 billion on loan guarantees for the Mutual Mortgage Insurance (MMI) Fund; projects insurance of $204 billion in single-family forward mortgages and $18.5 billion in Home Equity Conversion Mortgages (HECMs).
The budget also requests an appropriation of $160 million in administrative expenses, which will allow FHA to implement improved risk management and program support processes critical for the agency’s overstay of the MMI Fund.
Over the years, FHA has made multiple policy changes to strengthen the MMI Fund, including requiring manual underwriting for loans with credit scores below 620 and debt-to-income ratios greater than 43%. To improve access to credit without negatively impacting the MMI Capital Reserve Fund, in January 2015 FHA implemented a 0.5 percentage point reduction in the annual insurance premium.
Even the HECM program has seen several critical policy changes over the past year, including the implementation of the Financial Assessment and updates to the non-borrowing spouse policy.
“HUD is pursuing comprehensive legislative changes to give FHA the tools it needs to build upon the many administrative steps it has taken since 2009 to improve FHA single family programs,” HUD stated in its budget. “These proposals will allow FHA to enhance enforcement, create certainty for FHA approved lenders, and increase loss mitigation opportunities for borrowers with FHA approved loans. In total, these steps will reduce losses to the MMI Fund.”
The HUD FY 2017 budget also includes $47 million for housing counseling assistance, the bulk of which funds grants to HUD-approved counseling agencies.
“In particular, the Office of Housing Counseling is focused on expanding the number of counseled FHA borrowers and increasing access to resources that create more sustainable housing opportunities for households,” HUD wrote in its budget. “As the economy improves and the number of first-time homebuyers increases, the need and demand for housing counseling will increase as well.”
View the proposed FY 2017 HUD Budget.
Written by Jason Oliva
