The Federal Housing Administration (FHA) will announce anticipated changes to its Home Equity Conversion Mortgage (HECM) program in a mortgagee letter slated for release by end of the month, a spokesman from the Department of Housing and Urban Development (HUD) tells RMD.
The anticipated changes include a moratorium on the Standard Fixed Rate HECM reverse mortgage, as outlined in a letter from FHA Commissioner Carol Galante to Senator Bob Corker (R-TN) written on December 18.
In the letter, Galante states FHA is willing to make several changes to the Standard Fixed Rate product after an independent audit revealed the agency’s reverse mortage insurance portfolio had a negative net worth of $2.8 billion. In addition to the moratorium, the agency also intends to establish guidelines for conducting financial assessments of borrowers, and create escrow to pay for taxes and insurances, though the time frame for those changes is not specified.
In the meantime, reverse mortgage originators have been preparing for the change as there is remaining uncertainty as to how the changes will go into effect and under what time frame.
Specification as to how the changes will impact case number assignments and application for the standard fixed product will be included in FHA’s mortgagee letter, the HUD spokesman said.
The reverse mortgage changes are part of a larger initiative to shore up FHA’s finances, which includes implementing minimum credit scores on new FHA loans, scaling back the agency’s loan market share, and providing further assistance for foreclosed borrowers.
Written by Jason Oliva