DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Future of the HECM and HMBS Programs and Opportunities for Innovation in Accessing Home Equity
Request for Information
December 1, 2025
NEW VIEW ADVISORS’ RESPONSE
Introduction
New View Advisors is pleased to reply to HUD’s Request For Information (“RFI”) regarding its Home Equity Conversion Mortgage (“HECM”) and HECM MBS (“HMBS”) programs. We have been commenting on these issues for 16 years, with our inaugural blog entry in 2009 titled, “The Trouble With HECMs:”
Our thesis is that the HECM/HMBS program is fixable. From HUD’s standpoint, specifically the FHA MMI fund, the program is financially sound. HUD has successfully made some timely and successful reforms in past years, but several challenges remain. For the HECM/HMBS program to remain relevant, HUD (including FHA and Ginnie Mae) must enact a series of new reforms, or else its federally guaranteed reverse mortgage program will remain a curious appendage to the mortgage industry.
Some of these reforms can be enacted immediately; some would take until the end of Fiscal Year 2026, and some will take longer to implement. We will discuss them in our answers to the RFI questions and summarize them at the end.
Nearly all the supporting data for this reply may be found on our website, https://newviewadvisors.com/commentaries/, or on FHA’s own website, www.fha.gov.
A Short History of HECM and HMBS
The RFI contains a good short history of the HECM program. We would like to add a few more events and observations.
First, the HECM program did not have the benefit of a longstanding viable private product to serve as a model. As a result, it was overdesigned, with too many features and no real consumer input. The unique and curious features of the HECM include a line of credit that grows over time, a confusing array of options, and a mandatory put feature known as assignment (more on that later).
As the RFI notes, Fannie Mae bought nearly every HECM for many years, maintaining its monopsony until it had amassed a $75 billion portfolio. During this time, the HECM program stagnated. Fannie Mae dictated a low margin and banned fixed rate HECMs.
In the mid-2000s, some large financial institutions began to buy and securitize HECMs but were ultimately unable to create a durable capital markets program. Meanwhile, a handful of smaller lenders were able to originate proprietary jumbo reverse mortgages, which were successfully securitized in Lehman Brothers’ SASCO RM securitization program.
In 2007, in the nick of time, the HMBS program gave HECM a new beginning. Finally, a guaranteed, liquid pass-through security brought new interest and many new investors into the program. This gave HECM a crucial financing option throughout the period of financial crisis and recovery.
Even after the financial crisis, FHA believed the HECM program was on solid financial ground, but this was not the case. Around this time, in 2009, we began our New View Commentary blog and predicted the financial difficulties alluded to in the RFI. We wrote then that: “… a large portion of outstanding HECMs of recent vintage will generate losses, with more and more loans crossing over into loss territory each year. … That translates into nearly $8 billion dollars of loss in present value terms … The extremely high loan amounts, with Loan-to-Value ratios as high as 80% to 90% for older borrowers, are creating “crossover” losses as property values decline and loan balances increase. As a result, the HECM program faces a potential death spiral scenario, in which senior borrowers are faced with ever increasing costs to fund the subsidy required to continue its existence, an existence made more tenuous by the high costs to the borrower and the taxpayer.”
We also suggested reforms, including lower Loan-to-Value ratios (Principal Limit Factors or “PLFs”), and advocated for HECM SAVER.
FHA soon recognized that the HECM program was financially troubled. FHA reflected the increase in its estimate of Loan Loss Liability of $8.692 billion (for HECMs originated through FY 2008) in its 2010 Annual Management Report. This was consistent with the $8 billion crossover loss New View Advisors predicted in July 2009.
As the RFI notes, FHA enacted a series of reforms, including four rounds of PLF reductions and the enactment of Financial Assessment November 10, 2014 with ML 2014-21 and ML 2014-22. These reforms, combined with a period of home price appreciation, dramatically reduced default rates and improved the capital position of HECM’s contribution to the Mutual Mortgage Insurance Fund to its current stratospheric levels of 24% of Insurance in Force (“IIF”).
The capital cushion is required by law to be 2%. In fact, the capital fund is overfunded by a factor of 12, according to the FHA’s Annual Report of 2024. This is due to the excessive initial upfront Mortgage Insurance Premium (“MIP”), successful reforms such as financial assessment, and home price appreciation.
HECM is an expensive product, due to the enormous initial MIP charged by FHA. The upfront premium is equal to 2% of the lesser of the home value and the current ceiling for the Maximum Claim Amount (“MCA”) of $1,209,750. As was just published November 25th, the MCA is increasing another 3% in 2026, to $1,249,125. The MCA is considerably more than the actual amount borrowed. That means a borrower whose house value equals or exceeds the lending limit pays over $24,000 in initial MIP, in addition to any other origination fees. A borrower with a $500,000 home pays an initial MIP of $10,000. For many borrowers, this is a material obstacle to overcome, and no doubt contributes to the low volume of HECM origination, as well as its nagging high-cost reputation.
The fortunate fact is, now that Financial Assessment has been in place for ten years, such a high initial MIP is unnecessary. According to FHA’s annual report from November 2024, the ongoing MIP of 0.50% (50 basis points) per annum roughly covers losses in the program.
This is how we end up in the situation that prompted the RFI: an expensive, over-engineered, low-volume product that confuses its target consumer. The senior borrower instead wants a simple product that meets his or her needs at a reasonable price, in the form of a mortgage product that is familiar and comprehensible. Investors and HMBS issuers need a product that can achieve scale and a financing program that provides liquidity without encumbering their balance sheet or exposing them to unreasonable risk. FHA needs a product that is safe, manageable, and meets its policy goals; Ginnie Mae needs a HMBS program that is financially sound for itself, investors, and issuers.
The HECM program needs a reboot that accomplishes these objectives.
Our answers to the specific questions of HUD’s RFI follow. We have attempted to answer each question as completely as possible. In doing so, it was necessary to be repetitive with some of our main themes and recommendations.
- To what extent have the HECM and HMBS programs met their intended policy goals?
The HECM program has established a sound, fiscally responsible and reliable method for borrowers 62 and older to access equity in their homes, without fear of being able to pay it back/losing their homes. HMBS added material liquidity to the program, allowing HECM to continue in its current form. Had Ginnie Mae not launched HMBS in late 2007, it’s not clear the HECM program would have survived. The program has also always been there in times of financial crisis, such as the 2008 downturn when private capital markets shut down entirely.
Despite the 1.3 million borrowers that have used HECM to help finance their later lives, in the context of the 36 years the program has been in existence, this represents fewer than 150 HECMs originated per business day since its launch in 1989. This compares to more than 25,000 forward mortgages originated every business day in the United States. There are multiple competing statistics for HECM market penetration, but it’s safe to say HECM originations represent less than 1% of total mortgage originations during that timeframe.
As described above, many improvements have been made to the program since its 1989 launch, most notably multiple reductions in PLF and Financial Assessment. Moving the Expected Rate floor to 3% was another a material improvement to the program. Non-borrowing spouse protections have provided additional stability and reduced fraud in the program.
However, there have also been many changes to the program that do not effectively meet policy goals. As mentioned previously, Initial MIP as a percentage of available borrower proceeds has increased dramatically since interest rates began to rise in 2022. Combined with ever-increasing MCA limits, borrowers now have to pay as much as $24,195 for the privilege of taking out a HECM. PLFs are designed to drop as rates rise, causing more and more borrowers to be “short to close.”
2. What should HECM’s role be for senior borrowers, given the rise of proprietary home equity products and competition in the market?
HECMs play an important role for seniors who want the comfort of a government program and product. It should be the low cost, low to middle income product. The MCA ceiling should be approximately half of what it is currently, directing higher net worth and higher home value borrowers to the private capital markets.
In addition, while the private capital markets are currently functioning in an orderly manner, this is not always the case. Should there be a calamitous event shutting down access to the private markets, older homeowners need to have a government product that is reliable in the face of events beyond their control. This is a prime directive for all government function.
3. Do the HECM and HMBS programs inhibit private sector innovation in developing products for senior Americans to access home equity?
No. On the contrary, lately it’s been the opposite; shortcomings in the HECM and HMBS program have stimulated innovation in the private sector, but the lending limit should be lowered as noted in answer to #2 above, leaving the private products to cater to more affluent senior homeowners.
4. Are there certain features of the HECM and HMBS programs that present emerging risks or costs to the MMIF or Ginnie Mae?
Yes. The current feature of HECM includes a highly unsound lending practice: currently the Line of Credit (“LOC”) grows at that rate of the interest rate plus the monthly MIP, and unlike conventional HELOCs, the LOC never expires. No other home equity product offers unmanaged, automatic growth to the amount a homeowner can borrow without refinancing or reappraisal. The HELOC market never offers this feature, and in fact does the opposite; in times of distress retains the right to call in the LOC, not extend or expand it.
This means that the LOC grows without limit in size or time and that the higher interest rates rise, the more the LOC grows. This is an unsound lending practice; LOCs should not grow and should be reduced to zero for all HECMs within five to ten years of origination.
HMBS needs first and foremost a program that allows HMBS issuers to securitize HECMs otherwise bought out, or are eligible to be bought out, from HMBS pools when they reach 98% of their MCA. This would go a long way to preventing liquidity crises that have contributed to HMBS issuer exits and bankruptcies in the past. Eventually, as we discuss below, assignments to FHA could be eliminated altogether, which would vastly simplify and de-risk FHA’s HECM position.
FHA might also consider selling or securitizing its book of Secretary’s Notes, totaling over $20 billion, and least 150,000 loans. Ginnie Mae should consider selling off its own HMBS book, which it inherited from RMF during its bankruptcy.
Servicing the Secretary’s Notes presents unnecessary risk to the MMI Fund. While FHA made the right decision replacing its former servicer with an experienced in-industry servicer, the maintenance of such a large loan portfolio is not within the mission, or abilities, of HUD.
5. Why has consumer demand for HECMs declined over this period, despite a growing aging homeowner population and record levels of home equity?
Consumer demand has not declined for HECMs. Instead, fewer and fewer borrowers qualify, based on lower PLFs and the higher initial MIP. These two factors alone have put a material damper on origination volume. As interest rates rose starting in 2022, PLFs fell, providing fewer dollar proceeds to the borrower at closing. Compounding this problem is the increasing upfront MIP. As MCA increases, the upfront MIP increases, lowering available proceeds to borrowers. More and more borrowers are either short to close, or don’t want to pay up to $24,000 for the privilege of a HECM.
6. How well do borrowers understand the HECM product, including terms and risks? Are existing safeguards sufficient to protect borrowers from potential predatory lending practices?
HECM has a reputation as a complicated product. This is not surprising. The HECM was designed with a dizzying array of product choices: Lump Sum, Line of Credit, Term, Tenure, Modified Term, and Modified Tenure.
They succeed only in confusing the borrower, adding to the HECM’s reputation as “too complicated,” while failing to generate any material loan volume. The Term/Tenure/Modified options should all be eliminated, leaving the HECM as a simple HELOC product that senior homeowners can understand.
HECM counseling gives HECM a negative connotation. More complex financial instruments, such as annuities, insurance, and adjustable-rate forward mortgages do not require it.
Over the decades, we believe counseling has been watered down substantially, making it more of a check-the-box step rather than a more serious safeguard. During a panel at NRMLA’s annual conference in October, a speaker spoke of the challenges his grandfather faced trying to learn and understand HECM. It is not an easy product to explain, and adding additional bells and whistles, even if they’re in the best interest of the borrower, rather than provide clarity, often are the source of much confusion.
Given the PLF reductions, Financial Assessment, and provided that HUD simplifies the program as we propose, borrower counseling is not necessary.
7. How do borrowers respond to other home equity and proprietary reverse mortgage products versus the HECM product? Are there notable differences between those products and HECM in terms of usability, complexity, or borrower’s loan performance?
Private products are self-insured, simpler, and much easier to understand. In addition, upfront borrower costs are less. As a result, the borrower profile for private products is superior to HECM borrowers. Private label reverse mortgage borrowers have higher FICO scores, default less, and have higher average property values, often in more affluent zip codes.
8. What are lenders’ primary barriers to entry into the reverse mortgage market? How can HUD help remove those barriers to increase lender participation in the HECM program?
The single biggest barrier preventing banks and other major lenders from entering the reverse mortgage market is the lack of True Sale accounting. In 2011, the industry was forced to change the accounting treatment of issuing HMBS to a financing, i.e., deemed on-balance sheet, primarily due to the ongoing servicing obligations of assignment and buyout. This effectively ended the program at Wells Fargo, Met Life, Bank of America and others. HUD should focus its efforts on a seamless transfer of loans hitting the 98% assignment threshold, direct from Ginnie Mae HMBS to FHA, removing the servicer (see more discussion on this topic below).
Second, the 2% initial MIP is difficult for lenders and financial advisors to justify, a material drain on borrower upfront proceeds that makes the HECM a difficult loan to close. As we discuss elsewhere, the HECM program needs to become a “pay-as-you-go” product, with a de minimus initial MIP and possibly a larger ongoing MIP (recall the SAVER program), to ensure the program’s longevity.
Third, the industry and volume are too small for more competitors. Without meaningful change, large originators will stay on the sidelines, preventing growth. This negative feedback loop can be altered with solid program changes.
9. Should HUD reevaluate HECM features or products, such as certain payment plan options, Principal Limit growth, HECM for Purchase, and HECM-to-HECM refinances?
Yes. As we mentioned above, HECM has too many features, making it difficult to explain to most potential borrowers.
The Term/Tenure options are fixed payment options, in which the borrower receives a fixed dollar amount each month for a fixed period (term) or the entire life of the mortgage (tenure). The Modified Options allow for a line of credit combined with smaller fixed term or tenure amounts. These options, all of which must be disclosed and explained to the potential buyer, are not popular.
Based on current production data we see, the “Term,” “Tenure,” and “Modified” options are less than 5% of new originations. Borrowers want a line of credit or a lump sum, everything else is just confusion.
HUD must also resuscitate the fixed rate HECM. Fixed rate HECMs are an astonishingly small percentage of new originations, i.e., less than 2% of new HECMs are fixed rate. One would think senior borrowers prefer a fixed rate, remembering the various interest rate whipsaws of past decades.
The HECM program imposes a sublimit on the initial amount borrowed. However, this limit is easily circumvented by the adjustable Line of Credit. As a result, borrowers choose (or are steered) to choose the adjustable-rate product. No PLF sublimit should be imposed on the fixed rate borrower, regardless of the size of their current first lien or other obligations.
Fixed rate loans reduce interest rate and credit risk for both FHA and the senior borrower. All else equal, a fixed rate HECM borrower should have an initial PLF higher than the adjustable-rate borrower. Providing a separate PLF table for fixed rate HECM would improve the program.
The MCA ceiling of approximately $1.2 million is too high, and inappropriate for a HUD program. HECM for Purchase is a positive feature and should be retained. HECM to HECM refinancing, regardless of net tangible benefit, should be carefully scrutinized.
10. Is there possible investor demand for HMBS that is not currently being met? What changes or features would enable HMBS to better meet that demand, and what benefits and risks are associated with them?
Demand for HECM and HMBS far outpaces supply. Even if the program were to grow 10-fold or more, it would likely just bring in more investors into the space.
11. Would a different issuance volume attract more broker-dealers and investors?
Yes certainly. Every incremental billion in annual issuance or ten billion of outstanding float attracts more broker-dealer and investor interest. All else equal, more volume creates more liquidity and makes time invested in understanding an asset class is more worthwhile.
Compared to the forward market, volume in reverse mortgage securities is de minimus. In addition, HMBS float has fallen steadily for the past three years. While prior cries of illiquidity have been wrong, there likely does exist a threshold of low volume that will negatively affect pricing, and therefore interest in the space.
12. What features of the current HMBS product could be changed to improve issuer operations and provide greater liquidity, and what are the benefits and risks associated with them?
The HECM program, including HMBS, should eliminate the 98% assignment mechanism.
HECM investors assign their active HECM loans when the loan balance reaches 98% of its Maximum Claim Amount (“MCA”); this assignment feature is a claim (“Claim Type II”). The HMBS issuer must buy out HECM loans from their HMBS pools at the 98% threshold, whether the loan is active or not.
The 98% assignment is intended as a guarantee, with the added theory that since HUD owns the risk of these seasoned loans, they should own the loans themselves. The assignment mechanism also reduces the duration of the HECM loans and HMBS securities.
The assignment is the source of many of the HECM program’s woes. The HECM industry relies upon it as credit enhancement and liquidity, but it has proved unreliable for both. The FHA has relied upon it as a loss mitigation tool, but it has not reduced losses. It was meant to attract investors but has instead repelled them.
First, HUD is not suited to play the role of loan portfolio manager, or master servicer. HUD amassed a Secretary’s Notes portfolio of over $20 billion and had to fire the inexperienced servicer they had selected.
Second, the buyout feature means that investors and HMBS issuers cannot receive sale treatment accounting and must hold the HMBS on their balance sheet. This drove Wells Fargo, Bank of America, and MetLife out of the business, and it prevents banks and other financial institutions from becoming HMBS issuers. Only a couple of large financial institutions remain as HMBS issuers. In addition to relieving liquidity constraints and improving issuer operations, the removal of the assignment feature has the added benefit of removing the servicer from ongoing responsibility, the primary reason HMBS are accounted for as a financing, not a sale. Returning to sale accounting would bring back banks and other larger, more established lending institutions, further facilitating liquidity and origination volume.
Third, the smaller issuers experience financial stress buying loans out of their HMBS pools. This stress may have already contributed to one large HMBS issuer (RMF) filing for bankruptcy .
13. What regulatory or other administrative changes should HUD make to improve the HECM program, including but not limited to new servicing policies or tools, changes to HECM Refinance policies (e.g., net benefit test), and use of note sales and other strategies for active and due and payable HECMs?
The HECM program data is incomplete and inconsistent. Until 2011, HUD published a loan level data file for every HECM issued. HUD should release this data as well as summary data on claim losses by claim type and other loan categories, ideally linking by Loan ID to the loan level files published by Ginnie Mae. Understanding the outcome of HECM payoffs, particularly the frequency and severity of loss, is a critical component of transparency necessary for product acceptance, improvement, and growth.
Either do away with assignments, or have every loan assigned automatically at a pre-determined threshold direct from the HMBS to FHA.
And, as mentioned previously, for widespread acceptance, the industry must achieve true sale accounting again.
14. Are there any statutory changes that would improve the HECM or HMBS programs?
Yes, but we defer to legal counsel which of our proposed changes would require legislation.
15. Is there renewed interest in HUD providing HECM Lender Insurance authority?
This is not a priority at the current level of production, level of realized losses, and risk profile of the HECM program.
16. Does the Life Expectancy Set Aside (LESA) adequately cover borrowers’ actual property charges throughout the life of the HECM? If not, should HUD adjust the LESA or provide an alternative to combat tax and insurance defaults? Also, should HUD mandate a LESA for all borrowers?
We do not advocate for a mandatory LESA. Making LESA a requirement for all borrowers would punish borrowers looking to extinguish prior debt (through reduced proceeds), and financially responsible borrowers.
Restricting loan proceeds for all borrowers redirects the program away from a flexible source of home equity to a default-prevention tool.
17. What changes would you recommend to HECM’s underwriting policies in the Financial Assessment, and what are the related considerations?
From a financial perspective, Financial Assessment has been extremely successful. New View Advisors posted six analyses of HECM performance based on Financial Assessment, the most recent of which can be found here:
There remain significant procedural burdens for the consumer, which should be addressed by the trade associations and direct originators. Suffice to say that there are many technical improvements that could be made to HECM’s underwriting policies, but this would require a lengthy discussion.
18. What factors influence a HECM holder’s decision to transfer ownership of HECMs to another party, such as if the UPB is less than 98 percent of the Maximum Claim Amount (MCA) or the HECM is eligible for assignment? Do those factors differ based on the UPB to MCA ratio?
Loan Status and Current Loan-to-Value Ratio are the most important factors, along with the interest rate and/or margin.
19. How could HUD reduce obstacles to asset resolution and claim payment following a HECM becoming due and payable?
In the same way they do for other types of mortgage loans. Good servicing is the key, and good loan level data disclosure gives the proof. HUD should consider hiring a master servicer to oversee its issuers and subservicers in the HECM program.
20. How can FHA monitor better for deferred maintenance?
See answer to #19.
21. What program changes would improve the HECM and HMBS programs’ ability to meet their intended policy goals, while reducing or not increasing FHA’s or Ginnie Mae’ exposure to additional losses or risks? Are there aspects of other foreign or domestic reverse mortgage or aging-in-place programs that could be incorporated into HUD’s reverse mortgage programs?
To answer this question and summarize our recommendations:
- Immediate Steps (with 3 months)
- Significantly reduce the initial MIP by basing it on Initial Principal Limit (“ IPL”), not MCA, and lower the percentage from 2% to 1%, or less.
- Reduce the MCA (currently $1,209,750) by approximately half
- Eliminate Term, Tenure, and Modified Options
- Eliminate Line of Credit growth feature
- Limit Line of Credit to 5 to 10 years
- Allow lower IPL in exchange for proportionately lower IMIP and closed end loan, or re-introduce HECM SAVER
- Intermediate Steps (before end of FY 2026)
- Re-evaluate PLF tables in light of these program changes
- Consider small incremental increase to PLF for fixed rate HECMs
- Remove proceeds restrictions for Fixed Rate HECM
- Enact HMBS 2.0 (especially if Claim Type II is not eliminated)
- Improve Active loan assignment turnaround time
- Long-Term Steps
- Eliminate Claim Type II (98% MCA assignment)
- Sell Secretary’s Notes
- Sell Ginnie Mae’s remaining RMF HMBS portfolio
- Reintroduce HECM SAVER, or equivalent
Foreign programs have much lower loan-to-value ratios versus the HECM program’s PLF tables.
From 2010 to 2013 FHA offered the HECM SAVER, which gave lower PLFs in exchange for a de minimus (0.01%) initial MIP. HECM SAVER should be reintroduced. It was an excellent product, with average loan balances almost twice as high as traditional HECM, that met the need of many homeowners.
Our understanding was that FHA felt HECM SAVER contributed too much complexity, and competed too much with private products, but that was never proven during its short life span. Moreover, the HECM SAVER can simply be an initial MIP discount, in which the initial MIP is proportionately lower for any HECM borrower who voluntarily accepts a lump sum, closed-end HECM with a lower initial MIP than the maximum allowed.
The return of HECM SAVER, combined with the other reforms we advocate, would refute the high-cost reputation of HECM and provide a low-cost alternative for lower and middle-income homeowners.