For Seniors - FHA Looks to Strengthen Reverse Mortgage Program

Posted by Wendy G Brown on May 23, 2016 in Real Estate
Great news for Seniors. The Federal Housing Administration (FHA) recently proposed a new rule to strengthen its Home Equity Conversion Mortgage (HECM) Program. In addition to formalizing many of the structural improvements announced recently, FHA’s proposed rule is intended to make certain FHA-insured reverse mortgages remain a viable and sustainable resource for senior homeowners hoping to remain in their homes and age in place.
“We’ve gone to great lengths to protect seniors and ensure they can remain in their homes where they’ve raised families and where they hope to live out their days,” says Ed Golding, Principal Deputy Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development (HUD). “As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure, and sustainable financial option for future generations of senior homeowners.”

In the past two years, FHA implemented several reforms to improve its HECM Program. The proposed rule published today will reinforce those changes and add new consumer protections to make certain senior borrowers are sustained in their homes. These new changes would:
  • Make certain that required HECM counseling occurs before a mortgage contract is signed;
  • Require lenders to fully disclose all HECM loan features;
  • Cap lifetime interest rate increases on HECM Adjustable Rate Mortgages (ARMs) to five percent.
  • Reduce the cap on annual interest rate increases on HECM ARMs from two percent to one percent;
  • Require lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a Deed-in-Lieu (DIL) is executed rather than until when the mortgage contract is terminated;
  • Include utility payments in the property charge assessment; and
  • Create a “cash for keys” program to encourage borrowers to complete a DIL and gracefully exit the property versus enduring a lengthy foreclosure process.
Since the passage of the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, FHA implemented several reforms to its HECM Program, which include:
  • Limited initial withdrawals to ensure the financial stability of the program;
  • Developed criteria to allow certain non-borrowing spouses to remain in the home following the death of their borrowing spouse;
  • Expanded home retention options that mortgage servicers can offer to senior borrowers who have failed to pay property taxes and hazard insurance premium payments;
  • Required financial assessments for HECM borrowers to help to make certain their reverse mortgage is sustainable in the long term (i.e., to ensure senior borrowers have adequate income to cover routine property maintenance, pay property taxes, etc.); and
  • Strengthened FHA’s prohibition against misleading or deceptive advertising of the HECM Program. 
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