FHA to Increase MIP and Cut Principal Limit for Reverse Mortgage Product

The Obama Administration announced earlier this week that it was requesting a $250 million credit subsidy for the Federal Housing Administration’s reverse mortgage program along with a contingency appropriation to meet all program demand.

In addition to the subsidy request, Secretary Donovan told a group of attendees at the Brooke-Mondale Auditorium at HUD’s headquarters in southwest Washington that it would increase the ongoing annual Mortgage Insurance Premium (MIP) from .5% to 1.25% and a low-to-mid single digit cut in the principal loan limit said the National Reverse Mortgage Lenders Association.

Donovan added that there would be long term reforms in the reverse mortgage program down the line, but that the $250 million subsidy “is a reaction to last year’s adjustments to make sure the program does not limit its availability to seniors.”

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After the need to reduce the principal loan limits for the second year in a row, many feel the Office of Budget and Management’s assumptions regarding the HECM program are off.

“I think their assumptions about housing prices are far too pessimistic,” said Jeff Lewis, Chairman of Generation Mortgage in an email to RMD.  “Again we have a process that is highly flawed as no constituents will have the opportunity to examine OMB’s assumptions, which must be extremely pessimistic.”

He adds that, “the FHA is an insurance company, why does it act like there are no cycles? They should try to break even through a complete cycle, not at the bottom of the cycle.”