HUD Announces Major Changes to Reverse Mortgage Program

The Department of Housing and Urban Development today announced much-anticipated changes to its home Equity Conversion Mortgage program that will help manage risk to the Federal Housing Administration’s insurance fund as well as improve safety for reverse mortgage borrowers.

The changes are detailed in mortgagee letters 2013-27 and  2013-28 posted by HUD Tuesday and include the consolidation of the HECM Standard and HECM Saver programs into one.

Among additional changes are updates to the initial mortgage insurance premiums and principal limit factors; restrictions on the amount of funds borrowers may draw down at closing and during the first 12 months following closing; the requirement of a financial assessment for all borrowers to ensure that they have the capacity and willingness to meet their financial obligations and the terms of the reverse mortgage; and the requirement of a set-aside at closing  for the payment of property taxes and insurance based on the results of the Financial Assessment.

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The financial assessment and property charge requirements will be effective for all loans with case numbers assigned on or after January 13, 2014. Changes to initial disbursement limits, single disbursement lump sum payment option, initial Mortgage Insurance Premiums, Principal Limit Factor Tables and initial Mortgage Insurance Premium calculations for refinance transactions are effective for case numbers assigned on or after September 30, 2013.

“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.”

Lenders can view the program changes via the mortgage letter as well as additional documents provided on HUD’s website that further detail the changes.

The changes have been made possible by the Reverse Mortgage Stabilization Act of 2013, which authorizes the HUD Secretary to establish additional or alternative requirements determined to be necessary to improve the fiscal safety and soundness of the HECM program.

View the mortgagee letters.

Written by Elizabeth Ecker