The Department of Housing and Urban Development's Office of Inspector General announced Thursday that it's gathering information about Ginnie Mae's handling of Reverse Mortgage Funding's bankruptcy and
"The OIG's inquiry will include interviews, data gathering, and analysis of compliance with laws, regulations, policies and procedures related to Ginnie Mae's oversight of RMF," Inspector General Rae Oliver Davis said in a press release. Ginnie's history with RMF will be examined.
Davis described counterparty risk as "a top management challenge for HUD" and Ginnie Mae's more than $2.4 trillion mortgage-backed securities portfolio "a priority." MBS in the Home Equity Conversion Mortgage market are a relatively small but important subset of that portfolio.
"Because extinguishing issuers and seizing their portfolios places significant stress on Ginnie Mae's operations, my office has initiated an inquiry into the facts and circumstances that led to Ginnie Mae's extinguishment of RMF from the HMBS program," the inspector general said.
The watchdog agency declined to further explain the nature of the inquiry. Ginnie Mae had not responded to a request for comment at deadline.
HECMs, which provide borrowers 62 and up with the ability to tap home equity while still living in their houses so long as they can maintain them, dominate the reverse market.
Both Ginnie and the Federal Housing Administration, which insures HECMs, are arms of the Department of Housing and Urban Development. Ginnie takes responsibility for ensuring securitized loan payments get to borrowers. FHA insures some of the loans that collateralize Ginnie's bonds.
The seizure of servicing from Reverse Mortgage Funding's bankruptcy has had ripple effects including
Ginnie has been
Experts say the FHA proposal is likely to be well received by the industry, which may account for why its feedback period is relatively short.
"These are all things I think that industry has been asking for," said Jim Milano, an attorney at McGlinchey Stafford who specializes in reverse mortgage law.
Policy changes are sorely needed, said Ted Tozer, former president/CEO of Ginnie Mae and a nonresident fellow at the Urban Institute who recently authored a paper on issuer vulnerabilities and remedies.
"People are just looking around thinking, how do you make money in this business? And that's my biggest fear," said Tozer. "What people don't realize is I think we're on the cusp of the reverse mortgage basically disappearing, because no one's going to be able to service it."
FHA could provide $5,000 to $7,500 for certain completed foreclosure prevention measures, according to a proposed mortgagee letter posted on the administration's drafting table. The administration would also cover some expenses up to certain limits.
The new proposed incentives, in conjunction with other measures such as giving servicers the option to use verbal verifications in annual occupancy checks, are aimed at counteracting strains from higher rates that have been hurdles to broader industry involvement in this market.
"These changes … should make continued participation in the program more likely for existing HECM mortgagees and potentially entice other FHA mortgagees to participate," the administration said in a draft of its policy changes.
The lending downturn has spurred more traditional players to originate or broker reverse mortgages but the pool of companies that have serviced them has been limited.
FHA's feedback deadline for its proposed changes to the HECM program is Dec. 11.
In the proposal, foreclosure prevention actions that FHA would pay $5,000 to $7,500 include a deed in lieu, in which the borrower returns the property to the mortgage company without a formal sale and the servicer often agrees to forgive any outstanding debt.
Other actions the FHA would incentivize include a short sale, which is a deed-in-lieu alternative that's more transactional. The administration also would pay for "post-foreclosure eviction avoidance measures," defined as cash-for-keys offers successfully made within 30 or 60 days.
The FHA generally plans to pay more for foreclosure prevention actions completed in shorter time frames, and cover probate costs up to $5,000 with proof required for expenses higher than $500.
A deed in lieu or accepted cash-for-keys offer must include a home that's in "broom swept" condition. All appliances or fixtures that are part of the house must be intact.
People who contact borrowers and spouses who live in the home to verify occupancy would need to sign documents attesting to it and keep an audio file that they can produce if needed. The occupancy verification responsibility extends to spouses unnamed on the loan.
Other proposed policy changes aim to produce shorter processing times when assigning a loan to HUD after a borrower cures, more alignment in appraisal requirements and optional inclusion of homeowner association dues in property-charge repayment plans.
While all these steps may be positive there's a question of whether they will be enough to address the core problem, said Tozer, who said he had not fully reviewed them at deadline.
That's likely because a more effective strategy, which would involve Ginnie backing issuer financing, is beyond Ginnie Mae's available resources current officials at the agency have said.
"The cost of financing, as well as getting the financing, to deal with … buyouts that occurred was the biggest cost I've heard," Tozer said, noting that assignments have been another key concern. "Hopefully, FHA is really putting a lot of effort into looking at what they can do."
