Despite the suspension of the Standard fixed-rate product coming in April, the Federal Housing Administration (FHA) expects to make additional changes to its reverse mortgage program by August of this year.
These changes will arrive regardless of whether FHA obtains the congressional authority it has asked for, Charles Coulter, deputy assistant secretary of the Department of Housing and Urban Development (HUD), told participants of an FHA single family housing industry conference call on Friday.
While Coulter did not give specific policy proposals for these future program changes, he assured that the agency continues to engage with the National Reverse Mortgage Lenders Association (NRMLA) on how to structure the policies.
The changes currently being sought after to strengthen FHA’s Mutual Mortgage Insurance Fund (MMIF), which revealed an economic value of negative $16.3 billion, with the reverse mortgage sector representing a value of negative $2.8 billion.
A central focus, Coulter said, will be one of the main issues FHA believes has plagued its fixed-rate standard product, which is limiting the amount borrowers can receive from an upfront draw.
Specifically, the agency said it wants to implement changes that determine how much a borrowers will be able to draw, to ensure they have a “well-defined” need for the proceeds at the time.
“On the upfront draw, we want to allow for circumstances that require legitimate need for funds,” Coulter said.
As a product shift from adjustable- to fixed-rate transpired in the market before news of FHA’s independent audit, a majority of borrowers found themselves defaulting on their tax and insurance payments once they exhausted their funds obtained from upfront full draws.
While everyone has access to a certain amount of their home equity, Coulter says that defining how much borrowers can withdraw would provide the program with greater financial security, citing tax and insurance default as “one of the problems the reverse mortgage portfolio was negatively impacted.”
“The program is about financial stability over time, not taking all the cash out at once.” said Coulter. “We’re not trying to eliminate flexibility, just make sure it is better balanced.”
Aside from limiting the upfront draw, Coulter said there are other key issues that must be addressed in the upcoming changes.
These include changes that FHA announced earlier this year concerning the suspension of the standard fixed-rate product, such as implementing a financial assessment, establishing set asides for tax and insurance payments, as well as addressing the issue non-borrowing spouses of borrowers living in the home.
FHA said it will make its additional changes with or without congressional authority from Congress by August. The agency said it will also continue to issue guidance via mortgagee letters, however, congressional authority will enable them to take a more “balanced approach” to address the key issues laid before them, if it is granted.
Written by Jason Oliva