House Passes Legislation That Removes HECM Volume Cap

Implements National Loan Limit

The U.S. House of Representatives has passed legislation known as the Expanding American Homeownership Act of 2006 (H.R. 5121), which would make substantial improvements to the FHA HECM program.

President Bush issued an immediate statement thanking the House of Representatives for passing H.R. 5121 (referred to by mortgage industry trade groups as the FHA modernization bill) and urged the Senate to pass its own version, S. 3535.

Passed by a 415-7 vote on July 25, H.R. 5121 would create a single national loan limit for the HECM program equal to the conforming Freddie Mac loan limit ($417,000 in 2006); establish a "home purchase" option that would allow people to use a reverse mortgage to purchase newer housing that better suits their needs; and remove the volume cap on the number of HECM loans that FHA can insure (this last provision is also included in a stand-alone bill known as the Reverse Mortgage to Help America's Seniors Act, which passed the House of Representatives (H.R. 2892) last December, but is still pending in the Senate (S. 1710).

Two amendments were added to H.R. 5121 which are noteworthy. The first amendment would make a technical change to existing law that would give HUD the ability to insure HECM loans on co-ops. The second amendment would require HUD to study the mortgage insurance premiums charged on a HECM loan.

The Senate Banking, Housing and Urban Affairs Committee conducted a public hearing on June 20 to discuss the future of FHA and the key aspects of S. 3535, but no additional hearings or votes have been scheduled.

In case the Senate fails to act on S. 3535, NRMLA has a contingency plan. When it looks like a bill isn't going to move toward a final vote in either the House or the Senate, one option is to attach the entire bill, or certain parts, to a separate bill that is moving toward passage.

In our case, two key provisions from the FHA modernization bill—volume cap elimination and single national loan limit—were attached to the Fiscal Year 2007 HUD Appropriations bill (H.R. 5576), which the House of Representatives approved on July 9 and referred to the Senate Appropriations Committee for consideration.

The Senate Appropriations Committee voted to keep language in the HUD Appropriations bill that removes the HECM volume cap, but deleted the section on single national loan limit. A separate amendment was passed that would require the Secretary of HUD to study the geographic distribution of HECM loans insured by FHA.

The full Senate has not voted on the HUD Appropriations bill, and may not do so until after the mid-term elections in November.

While all these developments are clearly positive, NRMLA still has a lot of work ahead of us. None of the proposed changes to the HECM program that have been discussed in this article have become law. As developments occur, NRMLA will alert our members.

Possible Legislation

One final note. Reverse mortgages were discussed quite extensively at a hearing on planning for long-term care held before the Subcommittee on Health (part of the Committee on Energy and Commerce in the U.S. House of Representatives) on May 17.

Legislators, such as Subcommittee Chairman Nathan Deal (R-Ga), see reverse mortgages as a viable option for some homeowners to pay for future long-term care needs, rather than spending down assets and going on Medicaid or some other public assistance programs.

Chairman Deal stated at the hearing that he may introduce legislation later this year to encourage states to provide more information about reverse mortgages (and perhaps even incentives) to people who are at risk of going on Medicaid.