U.S. News & World: Reverse Mortgages to Face “Sharp Curbs”

Later this month, the Federal Housing Administration will release “sharp curbs” on its reverse mortgage loan product writes a U.S. News and World Report article this week. Once those changes are in place, consumers will need to take a close look at loan terms, under which they will have access to fewer loan proceeds overall. 

The article refers to changes being discussed by FHA in response to the agency’s annual independent audit, which in 2012 found its insurance fund for reverse mortgages to have an economic value of negative $2.8 billion. 

U.S. News and World writes: 

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Reverse mortgages, long criticized for high fees and other anti-consumer features, turn out to actually be the opposite—such a good deal that the government is nearly $3 billion in the hole on outstanding mortgages. As a result, the Federal Housing Administration (FHA) will later this month unveil sharp curbs on its loan product, called the Home Equity Conversion Mortgage (HECM).

When the new rules are issued, consumers will need to take a close look at the terms of these loans. While the specifics of the changes have yet to be announced, they will lead to consumers being able to access a smaller share of their home’s equity when they take out a reverse mortgage. In addition, lenders will probably be required to set aside a portion of the borrower’s home equity to pay future property taxes and home-insurance premiums. And there may also be limits that restrict lower-wealth borrowers from taking out a HECM.

The FHA (and thus taxpayers) has been losing the most money on the most popular HECM loan: a fixed-rate loan known as the Standard HECM loan. This type of loan will be halted under the new rules. Most borrowers thus will be required to consider a newer reverse mortgage called the HECM Saver…

Read the full article

Written by Elizabeth Ecker

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  • Why, why why do we allow this lie to continue? Taxpayers are NOT losing money through the FHA insurance fund! FHA has been self-funded since 1934 through the mortgage insurance premium paid by the borrowers!

    • jstults,

      In part you are somewhat right but in part you are totally wrong.

      FHA loses money regarding American taxpayers annually. None of its general and administrative expenses are funded through its insurance programs; it is done through annual Congressional appropriations. By statute Congress permits FHA to pay for counseling through the HECM insurance fund; however, Congress has generally agreed to fund counseling through the annual appropriations process. So to at least those extents, the American taxpayers fund the activities of FHA and HECMs specifically. Here actual money is spent.

      So as audit, actuarial, personnel, computer, software, counseling and other costs increase, it is the American taxpayer who pays these costs and increased costs. The annual dollar costs of the HECM program can be estimated by simply determining what the difference in the approximate annual appropriations to HUD would be with and without the HECM program, which is called the with and without method.

      As to the programs themselves, all that is measured in the ending fund balances are assets over liabilities. While that might not required money today, nonetheless as of September 30, 2012, the negative $2.8 billion was the best estimate of FHA and the actuaries as to how much American taxpayers as of September 30, 2012, are on the hook in future cash payouts for active HECMs still outstanding as of that date.

      While liabilities are expressed in dollars, they are not always based on dollars actually expended. So I agree with your comment in part but do not agree with its implications overall. The HECM program is in trouble, very deep trouble.

      While the annual dollars spent on counseling, and general and administrative costs may not go away (EVER), the fund balances can be increased or reduced depending on actual and estimated future note interest rates before assignment, the actual and estimated value of homes at termination, and any unrecovered termination costs incurred by HUD.

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