FHA: New Reverse Mortgage Changes Coming in August

Following Congress’ decision late Tuesday night to give the Federal Housing Administration authority to stabilize the Home Equity Conversion Mortgage Program (HECM), the agency says the long sought after changes could be arriving as early as August with implementation slated for October.

FHA plans to issue a mortgagee letter spelling out the changes to the HECM program by the end of August, a spokesman from the Department of Housing and Urban Development told RMD in an email. Additionally, the implementation of the new changes could arrive as early as October 1.

“We are looking at issuing ML by end of August and, ideally, October 1 for implementation,” HUD said. “However, FHA will take care to ensure it and the industry have sufficient time for an operationally responsible implementation.”

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Late Tuesday evening, the Senate passed The Reverse Mortgage Stabilization Act of 2013 (H.R. 2167), which the House approved on June 12.

Pending the president’s signature, the passage of the bipartisan bill would “authorize the secretary of Housing and Urban Development to establish additional requirements to improve the fiscal safety and soundness” of the HECM program.

Among the changes HUD is considering are financial assessments of HECM applicants to determine whether they have the financial capability of meeting the responsibilities of the loan, including tax and insurance payment obligations.

Other changes include mandating set-aside funds to ensure borrowers meet these tax and insurance obligations, restrictions on the amount of proceeds that can be withdrawn, as well as including all borrower spouses on the loans—regardless of spouse’s age.

FHA Commissioner and Assistant Secretary for Housing Carol Galante expressed gratitude for Congress’ passing of the bipartisan bill following the announcement.

“This helps ensure that seniors who have worked hard their entire lives to purchase and maintain their home can continue to enjoy the comfort and security of that home,” Galante said. “I commend the House and Senate for their bipartisan efforts to pass this legislation to further secure the financial stability of the FHA.”

Written by Jason Oliva

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  • Until the President signs the Act, HUD has no more power to change the HECM program than it did on July 1 of this this year. The requirements written about above are not in the law and may or may not be in a final Mortgagee Letter although it is most likely they will be there in one form or another.

    This law is a colossal blunder which many now in Congress will regret over time. It simply gives too much power to the HUD Secretary without any checks or balances.

  • Tax and insurance escrows for everyone?
    What are the thresholds for limiting initial draws?
    Will the 1009 be revised to make room for listing of all debts like for forward mortgages?
    VOE’s and VOD’s and Full Mortgage Credit Reports?
    Will credit scores be utilized?
    Will principal limit factors be lowered across the board?
    Is it likely lenders will start charging an Underwriting Fee?
    I think we can start speaking in complete sentences now don’t you think? No need for vagueness at this stage of the game and if HUD is still trying to decide what the guidelines will be then it’s regrettable that they have been granted the authority to make program changes without seeking approval from Congress.

  • The real unknown among the listed potential changes is the inclusion of non-borrowing spouses, regardless of age. Will this include a spouse from a marriage which post-dates the placement of a HECM? So long as any PLF or other adjustments affect ONLY loans involving such circumstances, this should not be an issue for the vast majority of HECM borrowers.

    On the other hand…

  • Originating HECMs is about to get significantly more complicated, with decreasing revenues against increasing production costs and a product that some are attempting to eliminate. My hat is off to those that have the fortitude to continue to invest and stay in the fight, may your vision be clear.

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