Authoriy to Continue to Insure Home Equity Conversion Mortgages

AUTHORITY TO CONTINUE TO INSURE HOME EQUITY CONVERSION MORTGAGES

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Mr. SCOTT of Georgia. Madam Speaker, I yield myself such time as I may need.

First of all, H.R. 391 is a bill sponsored by my good friend and colleague from Utah (Mr. Matheson). H.R. 391 would prevent any shutdown of the Federal Housing Administration, FHA, reverse mortgage program. This program is also known as the Home Equity Conversion Mortgage program, or the HECM program.

As we are all aware, the Federal Government is currently operating with temporary funding authority that expires on February 15, 2007. The FHA can insure no more than 275,000 FHA reverse mortgages cumulatively nationwide under this authority.

A reverse mortgage is a unique loan that enables senior homeowners to remain in their homes and remain financially independent by converting part of their home equity into income without having to sell their home, give up title, or take on a new monthly mortgage payment.

Reverse mortgage is an apt name because the payment stream is reversed. Instead of making monthly payments to the lender, as with a regular mortgage, the lender makes payments to the homeowner. Payments to the borrower come in the form of a lump sum, monthly payments, a line of credit, or a combination thereof. Thus, the funds can be adapted to the financial needs of the senior taking out that particular loan.

Mr. Matheson's bill is necessary because surging FHA reverse mortgage loan volume could result in this current national volume cap of FHA reverse mortgage loans being reached before February 15.

The FHA HECM program is the oldest and most popular reverse mortgage product, accounting for 90 percent of the total market. It has been available since 1989 to homeowners aged 62 or older. HECM loans are insured by the Federal Government through the Federal Housing Administration at the Department of Housing and Urban Development, HUD.

The HECM program was created to serve our seniors who are cash poor but equity rich. The majority of loan recipients are elderly widows. The funds from a reverse mortgage can be used for anything: daily living expenses; home repairs or modifications; health care expenses, including prescription drugs or in-home care; existing debts; and other needs. This is extraordinarily important and timely legislation for our seniors.

The HUD HECM program has proven to be a growing success, serving its mission, while actually making money for the Federal Government. Its rapid pace of growth created a near crisis in 2005 when the number of FHA reverse mortgage loans began to near a statutory volume cap on the number of reverse mortgages that FHA could insure, leaving the program on the edge of suspension.

However, emergency appropriations legislation for fiscal year 2005 raised the volume cap from 150,000 to 250,000. Last fall, in the face of a similar concern, the limit was increased a little further to 275,000. However, current projections show a very real risk that the cap will be met before February 15.

In 2006, the House passed a bill that included a provision eliminating the FHA reverse mortgage volume cap, but unfortunately, the Senate did not act on this bill. As a result, in the short term, the statutory cap needs to be kept above the actual number of loans, or HUD will be required under law to suspend the program. That is why we need this very important piece of legislation passed.

Madam Speaker, I reserve the balance of my time.

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