Changes are in store for reverse mortgages, but there are efforts under way to maintain the products that are currently available under the Federal Housing Administration’s Home Equity Conversion Mortgage program.
Citing “FHA officials who did not want to be named because they are still working with Congress on the issue,” the New York Times reports that while legislation is being worked on among both lawmakers, FHA officials are trying to keep both the standard and Saver programs available currently, rather than to eliminate any of the options available to borrowers.
“If the F.H.A. fails to get Congress’s blessing, it will have to take more draconian actions in the coming months…” the New York Times reports. “That means that effective Oct. 1, yet another of its reverse mortgage products will probably be eliminated, leaving borrowers with options that would allow them to get access to 10 to 15 percent less cash than they can now.”
But officials are working to keep all products, the Times reports, preferring instead to apply more stringent borrower guidelines to ensure borrowers can meet their loan obligations.
“F.H.A. officials told me that they would prefer to keep all of the agency’s mortgage offerings and instead put rules into place that would help ensure that they accept only borrowers who can actually afford to pay their property taxes and homeowners insurance, which is required to avoid foreclosure,” New York Times reporter Tara Siegel Bernard writes. “Nearly 10 percent of reverse mortgage borrowers are in default because they failed to make those payments.”
FHA would like to make the loans contingent upon a financial assessment while also allowing for credit scores to weigh in, although not to a predominant degree, the Times reports. Borrowers deemed to be risky would be subject to an escrow or set aside requirement depending on their level of risk. Limiting upfront draws is also under discussion.
“The agency also said it would like to cap the amount borrowers would be able to pull out at 60 percent of the maximum sum they were eligible for, or the amount needed to pay off their current mortgage, whichever was greater,” the article states.
The changes have been under discussion for many months, following the Obama Administration’s most recent budget proposal, which indicated the FHA could require a bailout due to projected reverse mortgage losses. Legislation has been passed in the House of Representatives to reform the HECM program while members of the Senate announced last week they have agreed upon terms to reform FHA, though the Senate has been mum on what those changes would include.
The reverse mortgage industry has been supportive of the changes, which would allow for a more targeted approach to reverse mortgage reforms, rather than sweeping change that FHA would need to resort to without authority from Congress allowing for the agency to make changes by mortgagee letter.
Written by Elizabeth Ecker