Reverse mortgage adjustments to make the program safer for seniors may be spelled out a little more clearly this week, Reuters reported Wednesday.
Housing Commissioner Shaun Donovan is scheduled to testify before the Senate Committee on Banking, Housing and Urban Affairs Thursday where he may detail some of those policy options to shore up the Federal Housing Administration’s insurance fund.
The change has been a point of discussion for the past several weeks following an independent audit of FHA’s mutual mortgage insurance fund and an FHA report to Congress based on those findings that found the HECM program with a net worth of negative $2.8 billion at the end of fiscal year 2012.
The report spelled out program changes that would potentially limit the product’s uses or change the amount available for borrowers. Department of Housing and Urban Development Deputy Assistant Secretary Charles Coulter told Reuters the agency will pursue one of two avenues to address the problem.
Its preferred approach, he said, is to get emergency authority from Congress to cap up-front loan draws at the greater of a fixed percent or ‘mandatory obligations’ associated with the reverse loan—closing costs and the retirement of mortgage liens or federal debt.
New safeguards to ensure borrowers can meet their tax and insurance obligations will also likely be added, he said.
More restrictive changes will become necessary if that authority is not granted. Either way, the changes are expected by the first or second quarter next year, National Reverse Mortgage Lenders Association President and CEO Peter Bell told Reuters.
“I think these are healthy changes that will address a handful of concerns that keep arising,” Bell told the publication. “There have been concerns that fixed-rate, full-draw loans are being taken out by people who should do otherwise. This will put a check and balance on that, and help the FHA with the mix of loans it’s insuring from a risk standpoint.”
The changes are in the interest of a program that better serves the senior borrowing population it ultimately was designed to assist.
“Seniors will need to rely on their homes as one of the mechanisms for sustaining themselves during retirement,” Coulter told Reuters. “Reverse mortgages can help seniors age in place in cases where they don’t have access to other liquid capital. We’re just trying to get this program to operate more consistently with that statement than it is today.”
Written by Elizabeth Ecker