After an across-the-board suspension of Federal Housing Administration single and multifamily mortgage insurance programs - including its reverse mortgage program - the mortgage industry is questioning whether originators will continue to originate loans until the programs are restored.
The U.S. Department of Housing and Urban Development, which oversees the FHA, has decided to suspend all programs which fall into its General Insurance (GI) or Special Risk Insurance (SRI) funds because Congress failed to allocate an additional $49 million in credit subsidy to the agency in a supplemental appropriations bill.
According to Shaun Donovan, deputy assistant secretary for multifamily housing programs at HUD, the department began the fiscal year with $153 million for the insurance programs, and has used $138 million of that allocation. HUD still has a pipeline of single-family loans that need credit subsidy totaling about $10 million, leaving the department with $5 million until the fiscal year rolls over on October 1.
The policy, outlined in a mortgagee letter, states that HUD will no longer endorse any single family mortgages that need FHA GI or SRI insurance that are scheduled to close after July 26, while multifamily insurance programs have been suspended since the publication of the letter, July 17.
Donovan estimates that 7,000 apartments totaling $500 million in loans, and 15,000 homes, totaling $1.5 billion in loans, will be affected. "Because we want to make sure we have a reserve for changes that come in last minute, we are not in a position of endorsing any loans either on the single family or the multifamily side," he said.
HUD has been actively working with Congress and the Office of Budget and Management to establish some additional subsidy before the August recess "so that we don't have a significant break in the programs."
"These are folks that have deals that need to close. And we're afraid that this is going to result in some deals not getting done," Donovan added.
Perhaps most at risk are senior citizens, who receive a majority of FHA-insured reverse mortgages, and small lenders who originate such loans. "Most lenders' greatest concern is that there are probably a number of small lenders out there who really don't have the sophistication to understand what's going on and they might consider not originating a loan and that is obviously very damaging to a senior citizen who is looking at these loans as a way of financing income," said a major mortgage-backed securities group head.
Additionally, Fannie Mae purchases all FHA-insured reverse mortgages, and did not return phone calls about the possibility of purchasing any originated reverse mortgages, even though they will not receive insurance for what could be more than 60 days. "Otherwise, [the lenders] have to generate warehouse lines and hold these mortgages on their books over that period of time until they're endorsed," the source said.
As for Ginnie Mae, who can only securitize loans that have either FHA or Veterans Administration insurance, it may lose some business as a result of the FHA program suspension. However, representatives were not available for comment to discuss whether it will affect any current security pools.