With changes to the Federal Housing Administration’s (FHA) reverse mortgage program already underway and more to come, some question whether the agency’s sweeping changes are an emergency measure or an excuse.
The 10% technical default rate resulting from borrower’s non-payment of property taxes and howeowner’s insurance is unsustainable, according to a blog post from AARP.
Having first been discussed in a March 2000 report on the Home Equity Conversion Mortgage (HECM) Demonstration Program, AARP writes that the problem of homeowner tax and insurance default is “not a new development” and that this 10% is “unsustainable.”
After a recent actuarial report found the FHA’s HECM portion of the agency’s Mutual Mortgage Insurance Fund has a negative projected economic value of $2.8 billion, the agency has already began to implement changes to its reverse mortgage program.
These include an unprecedented financial assessment of potential borrowers, according to the Department of Housing and Urban Development (HUD).
HUD has asked for special authority from Congress to expedite the program’s changes through Mortgagee Letters, rather than having to go through the long rule-making process.
Aside from financial assessment requirements, other changes HUD has proposed include limiting the reverse mortgage’s upfront draw, establishing set asides or escrows for tax and insurance payments, and even suspending the use of one of its products—the fixed-rate Standard HECM.
While certain problems for the reverse mortgage program have been long-standing, according to AARP, a scrambling to make instant program changes to correct problems for older loans issued in 2009 and 2010 seems “misguided at best.”
“Two years ago, HUD said they were developing a rule proposal regarding financial assessments,” writes AARP. “It is difficult to understand why it is now an emergency.”
Written by Jason Oliva