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NewsReverse Mortgage

Tax Cut Extension Mandates FHA Premium Increase

Annual Federal Housing Administration reverse mortgage premiums could stand to rise following the passage by Congress of the payroll tax cut extension that took place in December.

Just in time for Congress’s holiday recess, the tax cut extension passed, providing for anextension of the Social Security tax cut of 4.2% (initially set at 6.2%).

The extension will in part be paid for by increasing guarantee fees charged to lenders by Fannie Mae and Freddie Mac.

Additionally, under the legislation, FHA is required to hike annual premiums for 10 years, thus strengthening the FHA insurance fund. The change does not affect the upfront premium charged by FHA for insuring loans, however, according to the bill summary.

Where the increase will actually take place is unknown, but the administration is exploring its options for implementing the change.

“The legislation requires us to collect an additional premium of 10 basis points,” a Department of Housing and Urban Development spokesman told RMD in an email. “We are currently evaluating options for implementation of the requirement.”

As for the potential impact on the HECM program, the outcome is unknown, but reverse mortgages could stand to shoulder some of the burden.

“We can’t address the impact on specific programs yet,” the spokesman said.

Written by Elizabeth Ecker