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Reverse Mortgage

FHA to Halt Fixed Rate Standard Reverse Mortgage Starting April 1

The Federal Housing Administration today announced changes to is Home Equity Conversion Mortgage reverse mortgage program in an effort to limit risk to the agency’s finances. Among the changes comes the consolidation of its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options.

The change will be effective for case numbers assigned on or after April 1, 2013.

The new program requirements will be made in an effort shift the large majority of fixed rate reverse mortgage loans taken under the Standard program, which has caused stress to the FHA’s mortgage insurance fund, the agency said.

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said FHA Commissioner Carol Galante. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

Outlined in Mortgagee Letter 2013-01, the change will apply to case numbers assigned prior to April 1 for loans closed on or before July 1, 2013.

“To help sustain the program as a viable financial resource for aging homeowners, the HECM Fixed Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage,” FHA stated. “Using the HECM Fixed Rate Saver for fixed rate mortgages will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the Mutual Mortgage Insurance Fund.”

Galante first announced the intent behind the program shift in December through a letter to Senator Bob Corker (R-Tenn.). The Senator raised criticism over the FHA’s financial status in a congressional hearing following an audit of the FHA’s financial position in late 2012.

In the announcement, FHA also stated it will be making additional changes to its insurance programs in the coming days and weeks to further protect its MMI fund. Those changes are expected to include raising mortgage insurance premiums for forward loans, requiring additional underwriting standards for certain forward borrower profiles and raising downpayments for certain loans, among other changes.

View Mortgagee Letter 2013-01.

Written by Elizabeth Ecker

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