The Federal Housing Administration this week proposed a number of substantial changes to the Home Equity Conversion Mortgage program. As the industry digests this latest series of rule updates, popular belief suggests the new proposals will affect virtually every aspect of doing business in the reverse mortgage sector.
A little more than 24 hours ago as of this writing, FHA published a notice in the Federal Register detailing a set of new rules aimed at the agency’s efforts to further strengthen the HECM program and reduce risk to the Mutual Mortgage Insurance Fund.
“HUD’s leadership has continually voiced its support for the HECM program throughout the Obama administration as the Department has sought to put it on a sounder financial footing,” said National Reverse Mortgage Lenders Association President and CEO Peter Bell in a written statement sent to RMD. “These proposed regulations are another step in this process of strengthening the program, an effort that has been underway for a few years now.”
Suffice to say, the more than 200-page proposed rule will make for a busy reading weekend for industry professionals as they sift through the document and formulate, once again, strategies for how they will adapt to this most recent round of HECM program changes.
RMD’s requests for comments to various industry stakeholders, including both national and regional lenders, servicers and loan originators have mostly been met with hesitation. But as many are still poring over the documentation, the consensus seems to be that these changes will have a profound impact on various industry processes, including origination, servicing and even within the secondary market.
“In developing the regulations, HUD has to consider the perspectives of many stakeholders—homeowners, housing counselors, lenders, consumer advocates and Ginnie Mae investors, to name a few,” Bell stated. “It is not an easy task to balance the needs and concerns of all. Now we must all digest what has been proposed, project the potential impact and provide thoughtful comments back to HUD for its further consideration. We welcome this opportunity.”
FHA’s proposed rules will reinforce and codify recent HECM reforms that the agency has implemented in the past several years, and will also add new consumer protections, including making certain that HECM counseling occur before a mortgage contract is signed and requiring lenders to fully disclose all HECM loan features.
The proposal also aims to cap lifetime interest rate increases on all adjustable rate HECM loans to 5%, and reduce the cap on annual interest rate increases on adjustable rate HECMs from 2% to 1%.
Additional proposals include requiring lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a Deed-in-Lieu (DIL) is executed, rather than until when the mortgage contract is terminated; as well as create a “cash for keys” program to encourage borrowers to complete a DIL and “gracefully” exit the property versus enduring a lengthy foreclosure process.
“As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure and sustainable financial option for future generations of senior homeowners,” said Ed Golding, principal deputy assistant secretary for housing at HUD, in a written statement issued this week.
Written by Jason Oliva