FHA Official: More Reverse Mortgage Change Coming by August

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.

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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 

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  • “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.”

    Did I read that correctly, a majority? That is nonsense.

    While the quotation seems very misstated, it was indeed odd to say the least to hear the non-borrowing spouse issue tied to the problem of a negative economic value for HECMs. Were the HUD officials trying to muddy the waters?

    The FHA staff seemed less prepared for the conference call than Ms. Galante two days before for the actuarial report.

    • Government run amok. Not to worry they may have no Congressional
      authority to change anything at all or that all this confusion just
      mucks up the RM program some more. Try explaining that to a potential
      borrower. Oh yes, that would be steering or would it be just plan fear
      or just some more stupidity for the sake of fantasy consumerism
      imagined. Consider the plight of a car salesperson trying to explain
      similar confusion to a prospective buyer over the release of some new
      model (not) coming out on time.

  • I still do not understand that after making mortgage payments for 45 years and now because they have no money in the bank they can not ,will not or refuse to pay taxes and insurance.
    Its got to be a budget problem, with a Reverse Mortgage their total monthly payment is what 70% to 80% less.

  • Let’s not forget that many of our seniors have defaulted on taxes because the provisions our government has designed to care for it’s citizens in the golden years have not worked. These are the folks who are the foundation of our modern country and we owe them. Now we talk about financial assessment…which is to say that we turn our back on those who don’t qualify, rather than extending a hand. Shame on us…shame on you folks at HUD.

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