FHA: No Plans to Reinstate Fixed-Rate Full Draw Reverse Mortgage

The Federal Housing Administration does not intend to reinstate the fixed rate standard reverse mortgage product it suspended earlier this year, according to one of its chief officials. 

In a hearing before Senate Banking Committee members Tuesday, Carol Galante, assistant secretary for the Department of Housing and Urban Development, stated that the agency does not plan to reinstate the formerly popular product under FHA’s Home Equity Conversion Mortgage program. 

The statement came in response to an inquiry from committee member Senator Bob Corker (R-Tenn.), who asked whether the administration planned to reintroduce the product. 

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“It is understanding you have no intention of reinstating [the product],” Sen. Corker said.

“That is absolutely correct,” Galante answered. 

The hearing was called to discuss the FHA Solvency Act of 2013, which specifies stabilization of the HEMC program by allowing the Secretary to manage the HECM program through mortgagee letters issued concurrently with rulemaking.

Galante underscored the necessity to make the changes quickly in outlining those that HUD is seeking, urging the committee to approve a separate House-passed reverse mortgage bill (H.R. 2167). 

“We are looking for authority to make additional changes that would help the situation even more,” she said. “[We would like a] borrower assessment and better limitations in terms of what [borrowers] can take out.”

Without the authority to make the changes, Galante said, the administration will be forced to make undesirable blunt changes to shore up the program and rebalance its risk both for the FHA’s insurance fund as well as for senior borrowers. 

“If we can’t make those nuanced changes, we are going to have to say the entire amount [that can be borrowed] is going to be just lowered for everybody across the board,”Galante said. “It would be much less useful and for far fewer people. We would rather make the nuanced changes to get at the right problem than that across-the-board cut.”

HUD has requested the authority it is seeking on many occasions following reports that losses to FHA’s insurance fund largely attributed to its reverse mortgage portfolio could require a taxpayer bailout. 

Galante said the authority is needed before the next fiscal year, which begins October 1.

Written by Elizabeth Ecker

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  • If the language in Mortgagee Letter 2013-01 was vague to some in the industry, the language of FHA Commission Galante should eliminate all hope of a return of the disastrous fixed rate Standard. The clarity of the Mortgagee Letter should have been sufficient since the word “suspension” is nowhere to be found in that Mortgagee Letter.

    It is too bad that some have persisted stating it was a suspension giving out the hope that maybe with a better housing market and a few tricks at FHA, the product would be restored for at least all HECMs for Purchase and those Traditional HECMs when a significant amount of the proceeds were used to pay off existing mortgages and liens. That would be placing the MMI Fund at risk from this product all over again.

    This may be a very bitter pill for some to swallow but a very necessary pill for all. Our number one goal should be to preserve this program for future generations.

  • I like the rationale that a lump sum adjustable rate is a better option for FHA. I can’t wait until the Libor goes back to 4/5% and you see reverse mortgages compounding at a 8/9% minimum with today’s high margins and 1.25% MIP. Most competitor quotes are putting people into the highest margin they can to make as much money as they can. FHA should probably regulate margins and only allow 1 margin. Or hope properties start appreciating at 10% to support this industry and an increase in the 10 yr swap forces lenders to lower their margins since it affects the monies available.

      • Yes, it is. Just shows that the lenders will charge as high a margin that they can while they can. This program is in more trouble with the adjustable. The only option will be to reduce the principle limit factors again making the program less appealing. Or prevent folks from even qualifying with credit and income qualifications. Didn’t Metlife try this…they are still doing well.

      • Mr. Lunde,

        What kind of repercussions do you anticipate resulting from it?

      • So far it would seem likely that lenders reduce margins in order to preserve principal limit factors. That’s making a bet that cash to borrowers is the most important support for volume – even if it means charging an origination fee to replace lost loan sale premium revenue. If rates continue higher from here then it will become more dynamic as lenders won’t be able to keep reducing interest rate margins to support maximum principal limits.

      • So far most lenders have resisted that move despite the index combined with margins on some HECM ARMs above the expected interest rate floor (now 5.062%).

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