New Rule Proposed for Reverse Mortgage Program

May 18, 2016

The FHA Home Equity Conversion Mortgage loan, also known as an FHA Reverse Mortgage, could be getting some additional improvements designed to better protect qualified borrowers who apply for these loans.

According to the FHA official site, the proposed rule is intended to "codify several significant changes to FHAs Home Equity Conversion Mortgage program that were previously issued under the authority granted to HUD in the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, and to make additional regulatory changes".

FHA HECM loans are for qualified borrowers aged 62 or older who either own their homes outright or are very close to doing so. Reverse mortgages feature cash back to the borrower and no monthly mortgage payment. The loan is paid in full when the borrower dies or sells the home.

A press release at FHA.com says the new rule would, once approved, "make certain FHA-insured reverse mortgages remain a viable and sustainable resource for senior homeowners” wishing remain in their homes and age in place.

"The FHA and HUD have spent considerable time improving the FHA HECM program and adding changes to strengthen it. "We've gone to great lengths to protect seniors and ensure they can remain in their homes where they've raised families and where they hope to live out their days," said Ed Golding, Principal Deputy Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development, who was quoted in an FHA/HUD press release.

Golding added, "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."

FHA’s proposed rule adds consumer protections including, but not limited to:

• Cap lifetime interest rate increases on HECM Adjustable Rate Mortgages (ARMs) to five percent.
• Make certain that required HECM counseling occurs before a mortgage contract is signed.
• Require lenders to fully disclose all HECM loan features.
• Reduce the cap on annual interest rate increases on HECM ARMs from two percent to one percent.
• Require 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.
• Include utility payments in the property charge assessment.
• Create a cash for keys program to encourage borrowers to complete a DIL and gracefully exit the property versus enduring a lengthy foreclosure process.

The proposed rule is not final yet, so the changes mentioned above have yet to be implemented. We’ll follow this story and report future changes or developments as they occur.