Few people who have served as Assistant Secretary for Housing and Federal Housing Commissioner have had as much of a positive impact on the Home Equity Conversion Mortgage (HECM) program as Julia Gordon.
Since being confirmed by the Senate on May 12, 2022, Gordon has guided HECM through some turbulent times. The proactive responses by Gordon and her team, and their continued engagement with the industry, have been key to sustaining the market and its participants.
Not only is she a strong leader within the Department of Housing and Urban Development, but she is one of the few FHA Commissioners with a background in both consumer advocacy and housing finance, and her work has been informed by her unique perspective.
Reverse Mortgage Magazine sat down with FHA Commissioner Gordon to discuss the challenges of managing the HECM program, policy successes and future priorities.
Reverse Mortgage: How has your perception of the HECM program evolved since becoming FHA Commissioner?
Julia Gordon: Coming into this job, I was well aware of the HECM program and the challenges it created for the Mutual Mortgage Insurance Fund. But I think what surprised me most was just how complex the program itself is. The complexities start at origination and extend through loan maturity. The other realization I had upon becoming FHA Commissioner was how important this program can be to support seniors who want to age in place. Many seniors, especially now, have a good deal of home equity but don’t have access to a wide range of programs to help them tap that equity. For example, they may be living on fixed incomes that prevent them from qualifying for a HELOC (Home Equity Line of Credit). The only other option they would have if HECMs weren’t available would be to access products in a less regulated financial marketplace, which can be very risky, even more than the complex HECM program.
RM: In terms of volume, the HECM dwarfs in comparison to FHA’s “forward” mortgage program, and yet we understand that FHA spends an inordinate amount of time managing it. Why do you think the HECM program is such a challenge to administer?
JG: HECM is a complex and highly regulated program. We have statutes, regs, and years and years of mortgagee letters and stand-alone policy documents. That’s why the publication of the HECM Section of the Single-Family Handbook this past year was so incredibly important. While the portfolio itself accounts for less than five percent of the total MMI fund, it is the most volatile part of that fund. Its performance is highly dependent on house price appreciation forecasts, where only moderate changes in appreciation expectations can have a significant impact on the actuarial picture of the portfolio. This is a very complex program to operate both in the primary market and at the secondary market level, which requires a great deal of collaboration and cooperation between FHA and Ginnie Mae, as well as a lot of collaboration with the housing counseling industry, which plays such a critical role.
RM: What do you consider to be your proudest achievement thus far?
JG: First, I should note that our achievements are collective, featuring the work of a large number of people across our organization. We have policy experts. We have people in the national servicing center. We have people in our finance and budget team. There are IT specialists and procurement gurus. That said, I think all of us agree on the importance of issuing the Single-Family Handbook, which had been a work in progress for many years. What I think I can look to as a more personal achievement is the orientation that we now apply to all our work, which is to be as transparent as possible and to aim to make policy and operational changes that are wins for all our stakeholders– lenders, issuers, servicers, and borrowers. That’s what I’m most proud of, and I think you can see those results in a wide range of the changes that we’ve put out this year, both in HECM and in our other lending programs.
RM: What additional reforms would you like to see implemented in the time you have left?
JG: Our agenda includes making some currently nonassignable claims assignable, modernizing technology, reviewing origination costs, and overall, ensuring that HECM is as strong as it can be to meet seniors’ needs. We’re also supporting Ginnie Mae’s efforts to explore HMBS 2.0, which we believe would provide excellent liquidity support for the industry.
RM: You manage one of the largest insurance funds on the planet and I respect your prior comments that you want to be an attentive steward of those assets. Nevertheless, one of the biggest consumer criticisms of the HECM program is that it’s too expensive. Would you be receptive to looking at opportunities to reduce costs without creating additional risk to the Mutual Mortgage Insurance fund?
JG: We’re already looking at proposals related to the mortgage insurance premium for the program, as well as the full range of origination charges that HECM borrowers encounter. We hope that the industry can partner with us as we make HECM more understandable to seniors so that they know what they are paying for and what to expect throughout the lifecycle of their HECM loan.
RM: As we look to create a HECM for the future, one of the realities of aging is that most of us become more forgetful the older we get, which in the case of the HECM can lead to complications with verifying occupancy, keeping taxes and insurance current, etc. Have you and your team considered policy reforms to help improve the servicing of HECMs, so that these types of unfortunate events that could lead to foreclosure can be avoided?
JG: Yes, absolutely. Not only are we considering them, but we’ve already made several changes, among them assessing annual occupancy by telephone and reducing tax and insurance defaults by allowing servicers to offer eligible homeowners a longer period to repay property charges advanced by the servicer. Also, I cannot overstate how important HECM housing counseling requirements are. The housing counseling sector is continually trying to improve its work in this area. There are challenges that are extremely hard to address. For example, we know that many children of HECM borrowers, who become heirs when the last surviving parent dies, were not included in the original decision-making process to obtain the HECM loan. Counselors and everybody else involved in this industry try as hard as they can to encourage family involvement when considering a reverse mortgage, but that’s not always possible or realistic.
RM: Some borrowers can live 15 to 20 years after getting a reverse mortgage before a maturity event occurs. It’s not realistic for these borrowers, or their children or trusted advisors who may have gone through counseling with them, to remember everything they learned. What do you think about periodic counseling post-closing to help them understand their obligations?
JG: I believe it would be ideal to have more touchpoints for borrowers. I’ll be honest with you; the challenge is funding. We’ve asked for more funding for counseling, but we’ve not gotten as much as we need to make the counseling more robust, and particularly as borrowers age, they are less and less likely to be able to pay for that counseling themselves. I think it would be enormously additive to this program if Congress chose to fund a much more robust housing counseling outreach program.
RM: NRMLA has proudly enforced a Code of Ethics since its founding. Are there any practices going on in the marketplace that concern you and need to be addressed?
JG: In all our programs, FHA finds unintentional mistakes and encounters the occasional bad actor. As I’m sure your readers know, FHA has a quality assurance division, and if we see anything that isn’t being run according to our policies and procedures, we have steps we can take to address it. More generally, as we go forward and look at origination costs as I talked about earlier, we want to make sure that the borrower fully understands what they’re paying for and that they’re being charged the appropriate amounts for the products and services they’re receiving.
RM: The cost of homeowners insurance has dramatically increased across many parts of the country, which negatively impacts all FHA borrowers. What is FHA doing to address this problem?
JG: Across the entire Office of Housing, all of HUD, and in every federal agency that touches housing, there is incredible urgency about the skyrocketing costs and reduced availability of comprehensive property insurance. This is an existential problem that is going to take partnering on the federal, state and local levels to address it. Long-term, we need to be addressing climate change, which is driving the increased incidence and intensity of natural disasters. We need to make sure that borrowers are well aware of what coverage they need and what coverage they might not have if they aren’t keeping up with their insurance policies. In the HECM program, for those borrowers who have Life Expectancy Set-Asides (LESAs), we know that increases in the cost of insurance can cause LESAs to run out earlier than expected, which might become a more widespread problem. I hope everybody in the industry is paying sufficient attention right now because it’s going to take all of us working together to make sure borrowers can accommodate changes in the cost of insurance.
RM: What does a typical day look like for you?
JG: The Office of Housing comprises many program offices. There’s FHA, which has a single-family portfolio, both forward and reverse, a multifamily portfolio, and a healthcare portfolio with hospitals and residential care facilities. There’s the Office of Housing Counseling, the Office of Manufactured Housing Programs, and our assisted rental multifamily programs, along with support offices such as our risk office and operations team. In addition to the 7.6 million or so single-family borrowers whom we serve, we assist millions of renters and people in health care facilities. Every day is a whole new adventure. Yet while my days are quite busy, they’re made manageable by the incredible team we have here at FHA and more broadly in the Office of Housing. Coming from outside HUD into this job, I heard the stereotypes of government workers, and I’m here to tell you those stereotypes are not true. Some of the smartest, most creative, and hardest-working people that I’ve met in this industry are working here at HUD. We’re especially fortunate to have some of those people working in the HECM program. For example, we recently made some changes to the assignment process that involved multiple staff from across the country, from our Home Ownership Centers to HUD headquarters. They’re all trying to make sure that the experiences our partners have when they interface with us are as good as they can be, and we do all of this while being under-resourced, including sometimes having to work without a full fiscal year budget. Also, my day includes far more than just policy and operational decisions within the Office of Housing. It includes time spent working with HUD’s CIO (Chief Information Officer), on IT modernization, on human resources issues, on procurement matters, and on a variety of cross-cutting departmental initiatives. I can assure you that this job is never boring!
RM: Do you have a closing message that you would like to convey to our members?
JG: We remain deeply committed to this program. The input that we’ve had from the industry and the dialogue that we have both with individual lenders and servicers, as well as with NRMLA, is absolutely critical to helping us maintain and enhance this program for the seniors who rely on it. We have tried to be as transparent as we can be. We put policies up on the Drafting Table before we finalize them so that we can crowdsource the wisdom that so many people in this industry have. America is aging, and HECM is maybe not the first tool that everybody turns to, but it’s going to be an increasingly important tool and we want it to remain strong and viable. We want to support liquidity in the sector, and we want to make sure borrowers can access the program at a reasonable cost. We want to hear from you, our stakeholders, including lenders, servicers, NRMLA, borrowers, and consumer advocates, both through our formal rulemaking and through the policies and changes that we post for feedback. That’s how we can keep this program strong and viable into the future.
