Frank Cassidy and Joseph Gormley still need full Senate confirmation before they can assume their respective posts leading the Federal Housing Administration (FHA) and Ginnie Mae, but a prominent industry trade group isn’t wasting any time pitching them on a proposal to enhance access to home equity.
In a letter dated Nov. 26 and addressed to Cassidy and Gormley, the Mortgage Bankers Association (MBA) suggested overhauling the FHA’s Home Equity Conversion Mortgage (HECM) program, the only reverse mortgage product insured by the federal government.
“According to MBA members, the demand for HECM loans remains strong among seniors,” the association’s letter stated. “However, overall HECM loan volume has not increased due to overly burdensome aspects of the loan process and the steep upfront costs associated with the loan.”
Replacing today’s 2% flat-fee structure for charging HECM mortgage insurance premiums with a tiered system could avoid the present problem of disproportionately pricing out low-balance borrowers with significant upfront fees, the MBA proposed.
HUD’s RFI
The U.S. Department of Housing and Urban Development (HUD) administers both the FHA and Ginnie Mae, a government-run aggregator and securitizer of loans made through government-insured mortgage programs.
Cassidy, who was nominated to become the next FHA commissioner and assistant secretary of housing, currently holds the title of principal deputy assistant secretary at HUD. Gormley, who is President Donald Trump’s pick for Ginnie Mae president, presently serves as the corporation’s executive vice president and chief operating officer.
The MBA’s letter to Cassidy and Gormley was filed a few days in advance of a Dec. 1 deadline for public comments on a request for information (RFI) filed by HUD. Titled “Future of the HECM and HMBS Programs and Opportunities for Innovation in Accessing Home Equity,” the wide-ranging RFI noted that HECM activity has declined by 59% since 2022.
“What should HECM’s role be for senior borrowers, given the rise of proprietary home equity products and competition in the market?” the RFI mused.
HECMs are FHA-insured loans intended for homeowners aged 62 and older. A private market for similarly structured reverse mortgages also exists, which serves a similar borrower demographic of non-FHA-eligible senior homeowners.
HECM mortgage-backed securities (HMBS) are pools of securitized HECM loans.
HECMs and other types of reverse mortgages enable older homeowners to draw down equity in their homes with no monthly repayments if property taxes and insurance are paid and the property remains the borrower’s primary residence.
The loan balance (home equity converted to cash) grows with interest and can be distributed as a lump sum or a line of credit. However, payments are not due until the last surviving borrower or eligible non-borrowing spouse sells the house, no longer maintains the home as their principal residence, or dies.
Just $6.3 billion in unpaid principal balance from HECM loans was securitized by Ginnie Mae in 2024, according to the RFI, “nearly the same level as that of a decade ago.”
MBA proposals
Among a range of suggestions, the MBA advocated for the implementation of a new Ginnie Mae security that would allow HECMs to be resecuritized once they reach a 98% drawdown threshold.
Currently, Ginnie Mae-eligible issuers must buy HECM loans out of HMBS pools once a loan’s outstanding principal balance reaches 98% of the maximum claim amount.
The MBA also voiced support for relieving the FHA of “both certain servicing losses and the operational intensity of overseeing loan servicing activities” in recommending that existing private loan servicers retain servicing responsibilities (and fee revenue) throughout the life of the loan.
“FHA policies currently result in higher portfolio losses than those realized by private servicers,” the MBA letter stated.
The recommendation comes as the Trump administration is overseeing aggressive downsizing of the federal workforce. Thousands of HUD employees have been laid off this year, underscoring the administration’s inclination to look favorably on suggestions that shrink the federal government’s footprint in housing.
Other cost-efficiency recommendations from the MBA included modernizing FHA capabilities for collateral risk assessment and restructuring principal limit factors that contribute to higher mortgage insurance premiums.
