FHA Reverse Mortgage Changes Coming By Month’s End

The Federal Housing Administration (FHA) will announce anticipated changes to its Home Equity Conversion Mortgage (HECM) program in a mortgagee letter slated for release by end of the month, a spokesman from the Department of Housing and Urban Development (HUD) tells RMD.

The anticipated changes include a moratorium on the Standard Fixed Rate HECM reverse mortgage, as outlined in a letter from FHA Commissioner Carol Galante to Senator Bob Corker (R-TN) written on December 18.

In the letter, Galante states FHA is willing to make several changes to the Standard Fixed Rate product after an independent audit revealed the agency’s reverse mortage insurance portfolio had a negative net worth of $2.8 billion. In addition to the moratorium, the agency also intends to establish guidelines for conducting financial assessments of borrowers, and create escrow to pay for taxes and insurances, though the time frame for those changes is not specified.

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In the meantime, reverse mortgage originators have been preparing for the change as there is remaining uncertainty as to how the changes will go into effect and under what time frame.

Specification as to how the changes will impact case number assignments and application for the standard fixed product will be included in FHA’s mortgagee letter, the HUD spokesman said.

The reverse mortgage changes are part of a larger initiative to shore up FHA’s finances, which includes implementing minimum credit scores on new FHA loans, scaling back the agency’s loan market share, and providing further assistance for foreclosed borrowers.

Written by Jason Oliva

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  • Rumors have been circulating madly today that HUD would put off the elimination of the fixed rate Standard for another six months. It is good to see RMD proactively working to put to rest just unfounded claims.

  • REVGUYJIM,

    While that is true, normally Mortgagee Letters implement decisions of FHA much more quickly. Do you have any examples of where HUD has used a Mortgagee Letter to implement a decision six months down the road? Of course HUD could always break from precedence.

    Do you (or another reader) know if the termination is being kicked six months down the road?

    • No inside info here — just don’t expect effective date to be immediate. Given the ‘advance notice’ the industry has been given, I’m looking for 30 days from the date of the letter.

      • REVGUYJIM,

        I have heard the same thing as well. I just have not heard it from the Commissioner. Is the Commissioner your source?

  • >>a moratorium on the Standard Fixed Rate HECM reverse mortgage

    I hope HUD keeps it around for purchases. It’d be a shame for borrowers to have to contribute a larger down with the Saver.

    • Raymond,

      The one place where fixed rate Standards should be eliminated is purchases. With the fixed rate, the purchaser has NO choice regarding how much cash they will be putting into the deal but with an adjustable rate they do.

      • Was just saying removing the Std Fixed really hurts the purchase program (assuming that’s what you meant!

      • Ms. Lewis,

        Why would it hurt the purchase the program? Is that because it is the only way HECM originators know how to sell a HECM in a purchase transaction?

        The decision for the senior should be absolutely the same whether it is a purchase or a refi. If it should be any different, please explain.

        Are we in this business to help seniors or simply to originate HECMs with the greatest compensation? Perhaps you can open my eyes as to the extreme value of a fixed rate Standard in a purchase transaction?

      • >>the purchaser has NO choice regarding how much cash they will be putting into the deal

        They can put down more if they’d like, they just can’t access the extra amount via a Credit Line.

        I’ve never heard of anyone putting down more then they had to, so they could establish a Credit Line.

      • Raymond,

        Have you ever heard of a senior taking less cash at closing on a refi than was available to them? How are the two any different? The issues are the same in either transaction.

  • I noticed someone’s comments are no longer here. There were no rumors in the ether about the extension that anyone I knew had heard but Inside Mortgage is saying the WH will be asking for between $3 and $5 billion for the MMI fund for FHA. Maybe this thing isn’t going the way we may think after all.

    • wealthone,

      Whose comments are no longer here?

      We all saw how prior appropriations requests worked back in 2009 and 2010 when the House and Senate were both controlled by Democrats. Do you really believe this Congress will do that much if this President requested such relief? Even if they do, the amount shown will only take care of less than 20% to 30% of the total problem. And how will the proceeds be applied? Will any go to the HECM segment of the MMI Fund? Remember in fiscal years 2010 and 2011 HUD has already allocated over $2.2 billion from other MMI fund accounts to the HECM portion of the MMI Fund.

      This is like most things this Administration is doing and has done — too little, way too late.

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