September 10, 2013
The FHA and HUD have announced changes to the FHA Home Equity Conversion Mortgage program designed to manage risks and make the program more secure. According to a press release issued recently, the new rules will, “manage risk associated with the Federal Housing Administration’s (FHA) reverse mortgage or Home Equity Conversion Mortgage (HECM) Program. This is part of the Department’s continuing effort to reform, strengthen and protect FHA’s Mutual Mortgage Insurance (MMI) Fund”
“The changes being announced today will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” said Federal Housing Commissioner Carol Galante. “Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes.”
That’s according to HUDNo. 13-136, which adds that in the last few years, the HECM portfolio, “experienced major changes in demographics and borrower preferences that added significant risks to the MMI fund. These changes include borrowers shifting from selecting adjustable rate mortgages with access to the line of credit or modified tenure/term payment options to selecting fixed rate mortgages where the borrower draws down all available funds at the time of closing. Younger borrowers with more indebtedness and stagnant home prices have also contributed to the added risk.”
To make the FHA HECM program more secure, Congress passed something called the Reverse Mortgage Stabilization Act authorizing changes and “alternative requirements” that might be needed to shore up the FHA HECM program.
“FHA’s mortgagee letters articulate the policy changes intended to support the financial soundness of HECM program. In addition, FHA is providing approved lenders with a HECM Financial Assessment and Property Charge Guide which will help loan underwriters to implement the risk management reforms announced today which include:
- Changes to initial mortgage insurance premiums and principal limit factors;
- Restrictions on the amount of funds senior borrowers may draw down at closing and during the first twelve months following closing;
- Requiring a financial assessment for all HECM borrowers to ensure that they have the capacity and willingness to meet their financial obligations and the terms of the reverse mortgage; and
- Requiring borrowers to set aside a portion of the loan proceeds at closing (or withhold a portion of monthly loan disbursements) for the payment of property taxes and insurance based on the results of the Financial Assessment.”
We’ll examine the specifics of these program changes as the FHA and HUD make them available.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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