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FHA Official Statement: HECM Financial Assessment Is Allowed

In a letter published today by Federal Housing Administration Acting Commissioner Carol Galante, FHA stated that there are no restrictions on underwriting for tax and insurance for HECM loans and that FHA is working on changes to the HECM program that will make it more successful.

“HUD does not prohibit the inclusion of additional financial capacity and credit assessment criteria and processes in the origination and approval of HECM transactions,” the letter states. Those processes, however, may not violate FHA statutes or regulations, or any other applicable laws.

Galante’s letter points to several recent changes to the HECM program that were in an effort to respond to poor economic and housing market conditions.

“In response to these conditions, FHA has implemented several adjustments to the HECM program over the last several months to support the financial health of the Mutual Mortgage Insurance fund and sustainability of the program for FHA and eligible borrowers,” Galante wrote.

Those changes include the introduction of the HECM Saver, increased annual mortgage insurance premiums, reduction of principal limit factors and guidance on handling property charge related delinquencies with detailed requirements for notification to borrowers, reporting to HUD, loss mitigation and counseling support.

FHA has some additional changes under way that will take time to develop, the letter notes.

“FHA is currently in the process of revisiting its regulations to propose and ultimately adopt changes that are necessary to make the HECM program even more successful,” the letter states. “Many changes that are under consideration will require notice and comment rule-making, which is a complex and lengthy process.”

The baseline requirements, Galante notes, do not prohibit lenders for underwriting for tax and insurance.

“As we move forward in our efforts to strengthen the HECM program, we look forward to engaging the HECM stakeholders and working together on this important program for elderly borrowers,” the letter states.

View the letter here.

Written by Elizabeth Ecker