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Housing leaders are naturally interested in knowing how recent cost-cutting efforts by the federal government could be focused upon the U.S. Department of Housing and Urban Development (HUD) and its wide array of programs, including reverse mortgages.
In the first Trump administration, housing officials took a measured but disruptive approach to stem losses to the Mutual Mortgage Insurance (MMI) Fund caused by the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) book of business. But with renewed attention on cost cutting under Trump ally Elon Musk, could the HECM program — or the Ginnie Mae HECM-backed Securities (HMBS) program — be at risk?
Final Biden-era reports
In one of the final HUD financial reports of the Biden administration, the department’s fiscal year 2024 agency financial report detailed how the programs performed within HUD and the MMI fund. It found that insurance in force has trended higher since 2020, and in 2024 it reached its highest level in the five-year period ending last year.
Risk management is a key determinant of the overall impact on overall financial solvency, and prior efforts to address FHA claims were a priority during the first Trump administration.
Last year’s annual report to Congress issued by the FHA also showed that the HECM book of business has recovered significantly from its red-ink position in the late 2010s. The HECM book of business reached a positive capital ratio for the fourth year in a row on the overall government-backed portfolio. It not only remained in positive territory in FY 2024 at 24.5%, but it exceeded the previous peak from 2022 (22.77%).
This comes despite the fact that overall HECM volume declined in FY 2024 when compared to one year earlier.
HUD scrutiny an open question
It’s unclear how the Trump administration’s posture regarding the financial impact of HUD programs will play out. Upon his confirmation as HUD secretary, Scott Turner’s advisers suggested that openness and collaboration with Musk’s “Department of Government Efficiency” (DOGE) could be helpful. This week, the president issued a new executive order directing the establishment of a DOGE leader at every federal agency.
The order was primarily directed toward hiring activities. But as recently as 2023, former Ginnie Mae President Alanna McCargo advocated for additional personnel and resources to help manage the additional work created by the company’s assumption of a sizable HMBS portfolio.
“We’ve been working really hard to expand the budget, resources and staff at Ginnie Mae. We have been woefully under-resourced,” McCargo said at a Bipartisan Policy Center event that summer. “We have not grown very much if you look at […] the size of the portfolio that is now under our control. Not to mention [that] along the way, sometimes institutions fail and our guarantee goes into effect.”
In an interview with HousingWire’s Reverse Mortgage Daily (RMD) later that year, McCargo said she was hopeful that Congress would authorize greater budget authority to the company.
HECM stresses are unique
In a recent editorial published by HousingWire, former HUD deputy secretary and FHA commissioner Brian Montgomery mentioned the department’s reverse mortgage programs as issues that Turner will need to navigate in the current term.
“HUD’s reverse mortgage portfolio continues to experience stress largely due to the current interest rate environment,” Montgomery wrote last week. “Despite a seemingly strong capital position as reflected in the most recent report to Congress, higher interest rates have slowed the origination volume and significantly impacted lenders’ warehouse lines.”
This goes back to a need to address risk across the government’s housing programs, he explained, something prioritized by Montgomery during the first Trump administration.
“All of this points to the need for strong risk management, not only at FHA but throughout the department. Given the magnitude of the portfolio and the complexity of the programs, a keen focus will be vital in the next four years.”
The reverse mortgage industry looks forward to working with Turner, according to National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin.
“I extend congratulations to Secretary Turner on his ultimate confirmation,” Irwin said in a recent interview with RMD. “Our members should recognize that Secretary Turner understands the value of public-private partnerships, and his combination of experience in both the public and private sectors, I think, will equip him well to lead HUD over these next four years.”
‘Taxpayers don’t fund FHA’
The month before Trump’s inauguration, Montgomery also published an op-ed in The Wall Street Journal describing why he thinks political conservatives should “love” HUD.
“HUD supports homeownership through the [FHA] and [Ginnie Mae],” Montgomery wrote in December. “Except for administrative expenses and IT, taxpayers don’t fund the FHA. Most of HUD’s budget is for subsidized rental housing, not the FHA.
“The mortgage insurance that the agency offers homebuyers — 80% are first-time purchasers — is funded by borrowers’ premiums paid through their lenders. The agency’s reserves come entirely from borrowers’ premiums and investment income.”
When combined with the annual surplus that such programs deliver to the U.S. Treasury, this helps to signify FHA as a “model of efficiency,” Montgomery wrote. The annual surplus to be delivered to Treasury in fiscal year 2025 is currently estimated at $6.2 billion, he said.
It remains to be seen who the Trump administration will choose as candidates for important roles such as FHA commissioner, Ginnie Mae president and deputy HUD secretary. Ginnie Mae is currently headed by acting leadership, but the HUD and FHA roles remain vacant.
Taxpayers do fund the HECM program. For example, there was a $1.7 billion mandatory appropriation that was paid into the MMIF by Treasury at the end of fiscal year 2013 that is now in the HECM portion of the MMIF. Also the costs that FHA/HUD incur related to the HECM program that are not paid from the MMIF or the GI/SRI Fund are paid from the budget, money supplied through taxpayers that include annual HECM counseling subsidies, personnel costs, facility costs, and other operating and administrative costs.
There is a very false impression in the article that the turn around in losses to positive numbers in the last few years are related to the HECM endorsements generated in those years. The fact is that Home Price Appreciation has made all net present value computations for HECMs (endorsed after 9/30/2008) in all fiscal years positive (except for fiscal year 2022 which had a negative NPV of $618 million as of 9/30/2024) according to the Acturial Review of the HECM portion of the MMIF as of 9/30/2024.
Then there are the homes that HUD acquires in the foreclosure process of HECMs assigned and owned by HUD. Their ultimate disposition sales price normally exceed the cost of the related HECM assignment costs plus fix up costs.
While the ideal never turns into reality in the world of real estate and adjustable rate mortgage transactions, the picture provided by former Commissioner Montgomery is reasonably accurate. I just hope the Trump Administration and the new HUD Secretary take the former Commisioner’s recommendations to heart.