Labor Day Round-Up: HUD’s Major Reverse Mortgage Shake-Up

After a blockbuster week in the world of reverse mortgages, you’ve earned a relaxing Labor Day weekend. All of us at RMD wish you a wonderful break, and don’t forget to take a second to tip your cap to the workers — of all kinds and walks of life — who keep our country running every day.

We’ll be closed on Monday in observation of the holiday, returning bright and early Tuesday morning to keep you updated on the changes afoot for the Home Equity Conversion Mortgage and any other news you need to jump-start your short week back. But in the meantime, catch up on the week that was — or save this as a Tuesday-morning refresher.

HUD to Raise Premiums, Tighten Limits on Reverse Mortgages — The Department of Housing and Urban Development shocked the industry with lower principal limit factors and higher mortgage insurance premiums for many borrowers, citing stress on the Mutual Mortgage Insurance Fund and concerns about homeowner equity. The short summary: On average, borrowers will be able to access about 20% less cash than before, and everyone will pay a flat 2.0% upfront mortgage premium. For smaller-draw borrowers, that’s a jump from 0.5% of the maximum claim amount; for applicants seeking more cash, that’s a discount from 2.5%. And everyone pays annual premiums of 0.5% of the loan balance, down from 1.25%.

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What HUD’s New Rules Mean for the Reverse Mortgage Industry — In this breakdown, RMD takes a look at the ramifications of HUD’s new rules, from the disappearance of the rate “floor” to the potential for a September surge in applications and counseling demand ahead of the October 2 rollout.

HUD Issues New Reverse Mortgage Servicing Guidance — It was quite the busy week for HUD, which also issued a mortgagee letter laying out new servicing guidelines — including rules regarding due-and-payable notifications and Cash for Keys transactions.

Appraiser Indicted on Reverse Mortgage Fraud Charges — A Pennsylvania home appraiser faces up to 166 years in prison for allegedly submitting inflated HECM appraisals to the Federal Housing Administration, costing the agency $3.7 million once the associated loans defaulted.

‘Victims of a Past System’: WaPo Looks at Reverse Mortgage Foreclosures — The Washington Post interviewed seniors who have had issues with reverse mortgage servicers over unpaid taxes and insurance, getting perspective from both HECM critics and supporters.

Written by Alex Spanko

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  • “HUD to Raise Premiums, Tighten Limits on Reverse Mortgages.” The emphasis in the heading should be “Lowered PLFs and Lowering of Ongoing MIP with an increase in Initial MIP for about 61% of all new borrowers.”

    The reason why the heading should be changed is interest is the biggest expense for almost all HECMs so it should come first. As to ongoing MIP, on most loans at termination it will be the second highest cost, and generally initial MIP is the third highest HECM cost.

    When the costs of a HECM are discussed we need to help borrowers realize that interest will be the highest cost they incur. This is important to be able to explain why there is benefit to paying MIP. Without MIP, borrowers would to cover the additional cost of these very risky loans which is normally high interest rates.

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