HUD Announces Major Changes to Reverse Mortgage Program

The Department of Housing and Urban Development today announced much-anticipated changes to its home Equity Conversion Mortgage program that will help manage risk to the Federal Housing Administration’s insurance fund as well as improve safety for reverse mortgage borrowers.

The changes are detailed in mortgagee letters 2013-27 and  2013-28 posted by HUD Tuesday and include the consolidation of the HECM Standard and HECM Saver programs into one.

Among additional changes are updates to the initial mortgage insurance premiums and principal limit factors; restrictions on the amount of funds borrowers may draw down at closing and during the first 12 months following closing; the requirement of a financial assessment for all borrowers to ensure that they have the capacity and willingness to meet their financial obligations and the terms of the reverse mortgage; and the requirement of a set-aside at closing  for the payment of property taxes and insurance based on the results of the Financial Assessment.

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The financial assessment and property charge requirements will be effective for all loans with case numbers assigned on or after January 13, 2014. Changes to initial disbursement limits, single disbursement lump sum payment option, initial Mortgage Insurance Premiums, Principal Limit Factor Tables and initial Mortgage Insurance Premium calculations for refinance transactions are effective for case numbers assigned on or after September 30, 2013.

“The changes being announced today will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” said Federal Housing Commissioner Carol Galante. “Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes.”

Lenders can view the program changes via the mortgage letter as well as additional documents provided on HUD’s website that further detail the changes.

The changes have been made possible by the Reverse Mortgage Stabilization Act of 2013, which authorizes the HUD Secretary to establish additional or alternative requirements determined to be necessary to improve the fiscal safety and soundness of the HECM program.

View the mortgagee letters.

Written by Elizabeth Ecker

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  • While these changes don’t seem like a big deal, you are going to see a huge drop in funded reverse mortgages going forward and after January 2014 you might as well kiss this program good bye.

    • I agree that FHA has thrown down the gauntlet. These changes say that it no longer wishes to recognize the reverse mortgage as a program of need. The very people that FHA is supposed to help will be denied access for either credit, income or lower home value reasons. When you factor in the app. 15% lowering on the PLF, the 60% availability rule (or pay an additional 2% in upmip), the 1 year delay in funding availability and the LE set aside come Jan. this program will no longer have the viability it once had. I guess its more important for FHA to be bullet proof rather than Washington looking out for our country’s seniors.

  • I agree, I don’t see much room for growth unless you are a major player in this industry and have the money to spend on advertising. You have to think especially when the assessment comes into play the amount of non-qualified leads that are going to be sent to each company is going to be astronomical. You will see many companies dropping out of the industry, leaving only the top 2 or 3 on the top 100 list left standing. All the others will run away with their tails between their legs.

  • Where are the new PLF tables? They are referenced in the letter but the link brings you to the HECM for Lenders section on HUD’s site which references and links to the current PLF tables only.

  • I am expecting to see compensation plan changes for loan officers nationwide. I don’t see a path where LO’s can make the same money as they are now with the lower UPB’s that will be in effect starting 9/30. Also lenders will need to do mass volume in order to maintain thier revenue streams with the way they structured their current business models.

      • I disagree on your remark regarding brokers. There is nothing in these changes that is specific to brokers, therefore it will have the same impact on brokers as on bankers: lower volumes/revenues and higher origination costs.

      • Why do you say that? I am a broker and have been hearing this for the last 2 years yet I am making more money than ever. Lenders will always find s way to compensate us.

      • reverseguru1,

        Really?? A needs based program?? Since when?? You are promoting another industry generated myth that is ruining the MMI Fund.

        Here is what the law says the program is [12 USC 1715z-20(a)]:

        “§1715z–20. Insurance of home equity conversion mortgages for elderly homeowners

        (a) Purpose

        The purpose of this section is to authorize the Secretary to carry out a program of mortgage insurance designed—

        (1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; and

        (2) to encourage and increase the involvement of mortgagees and participants in the mortgage markets in the making and servicing of home equity conversion mortgages for elderly homeowners.”

        Please point out where you find “needs based.” It is a mortgage designed to provide liquidity to senior homeowners at the time they need it most — in retirement. That means it is as much for needs based as anyone else including those who want it as a standby reverse mortgage.

        It is the dominance of needs based mortgagors which is killing the program.

      • You misinterpreted me Cynic. I said “This USED to be a needs based program”. It is not anymore. But most people NEED a reverse mortgage and don’t want it.

  • Revenues and operating margins will drop, as volume decreases, the cost to acquire a customer goes up, and operations input cost per file goes up (more difficult to process and underwrite a file).

  • Bottom line is that we have a huge opportunity prior to the end of this month and prior to January 17th. Going forward we are working with a demographic who needs our help and I believe this product should be intertwined into most retirees plans. This just got a lot less expensive for the mass affluent who don’t need all the funds in year 1.

  • Who is ready to step up with a proprietary product and how soon? Over the last five years we’ve evolved to mirror the forward market. Isn’t it time that FHA is only a holding a small market share?

    After reading through the “HECM Financial Assessment And Property Charge Guide”, I can’t see many applicants willingly providing the information needed to process a loan. It’s just not worth it to them. They’ll apply for a HELOC or sell their home.

    • Metlife did this the fall of 2011, seniors provided the information needed but loans backed up so badly in the pipeline that Metlifes Financial Assessment was dropped January 2012, I closed 27 loans between Jan & Feb that had been previousl
      suspended due to FA. .

      • MetLife’s loans didn’t back up so badly. It was dropped b/c no one followed suit. It didn’t bode well for the sales force.

      • Met dropped it simply because their Wholesale pipeline dropped to ZERO. There were plenty of other Lenders for brokers to place their loan without FA.

  • The truth of the matter is the HECM program is not a welfare program for the poor, the cash-strapped…that is an entitlement. It is a federally-insured loan program for seniors which should be self-sustaining. Can an argument be made that it is cheaper for the Fed to subsidize the program than more seniors going on Medicaid? Certainly.

    The MMI fund is a royal mess. It didn’t help that we had the Fixed Rate HECM as a closed-end loan with a full lump sum withdrawal required by lenders thus massively accelerating negative amortization/loan balances. The fixed rate’s heyday just after a massive crash in home values? Really? Not such a good idea we now see.

    HUD & FHA are attempting to push this program back to it’s original intent. To help seniors age in place over time. Thus the prevalence of tenure plans before 2008. We can no longer afford the cash-poor borrower who may end up in technical default due to a lack of cash flow or poor spending habits. If we continued to see the HECM as a solution for the financially strapped senior this demographic would have further damaged the insurance fund. It was time for a change, although unwelcome by many. The medicine in this case is better than the untreated economics of the program.

  • The changes are mind boggling, it will take us all a while to assimilate it all. The good old days, they are gone, we have to adapt or leave the industry to seek our dreams else where.

    I feel as rough as the changes will be to swallow initially, those who hang in there will adjust and go forward as usual.
    True, we will need to start focusing on new markets, think differently and go after seniors with more equity in there properties but they are out there. The program will still help those people we helped before. We will just be dealing with less funds and new guid lines to work within.

    I wish after all these changes are implemented that HUD, our Federal Government and the CFPB takes a sabbatical and retreats from change after change, we all need a rest from it, especially our seniors!!!

    John A. Smaldone

  • This is not a reverse Mortgage to help us seniors. It’s a program to help the lenders. I thought long and hard about doing this but after looking at the old Amortization Schedule.. it scared me away for good. The Mob has better rates.

    • Fred,

      I am not sure what kind of reverse mortgage you are referencing but generally its returns to the owner of the products are so low that the only reverse mortgages which could be successfully and consistently “sold” into the secondary market are those with FHA insurance and GNMA guarantees.

      Perhaps it is time for you to look at a HECM.

    • Mr. Ferrell – Are you saying that you should be able to borrow money with no monthly repayment and not have compounding interest? No investor would purchase these loans with simple interest, and brokers/lenders don’t make the loans with their own money anymore. It’s that simple.

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