Changes Coming To HUD’s Reverse Mortgage Program

14302_reverse_mortgage Changes Coming To HUD's Reverse Mortgage Program Following passage in the House and Senate in June and July, respectively, President Obama signed the Reverse Mortgage Stabilization Act into law on August 9.

The new law gives the Department of Housing and Urban Development (HUD) the power to make changes to the Home Equity Conversion Mortgage (HECM) program, more commonly known as HUD's reverse mortgage program, to help shore up its reserves and maintain its solvency.

According to a letter to borrowers from Federal Housing Administration Commissioner Carol Galante sent earlier this week, the changes include a hike in mortgage insurance premiums and limitations on principal.

Also coming are caps on the lump sums borrowers can draw at closing and during the first 12 months following closing.

In addition, HUD will be conducting financial assessments for all HECM borrowers to ensure that they have the capacity to meet their financial obligations and the terms of the reverse mortgage.

What's more, borrowers will be required to set aside a portion of the loan proceeds at closing (or withhold a portion of monthly loan disbursements) for the payment of property taxes and insurance based on the results of the financial assessment.

The FHA and HUD had previously announced that the changes would be coming. To help borrowers navigate the changes, HUD has published a Financial Assessment and Property Charge Guide.

In July, it was reported that the FHA was facing up to $5 billion in reverse mortgage losses and may need a bailout totaling up to $1 billion this year in order to shore up its reserves. Most of the losses were incurred when millions of homeowners took out reverse mortgages at fixed rates, opted to take lump sum payments and then ran into financial problems. The agency, which is required by law to maintain reserves equal to 2% of its portfolio, currently has about $32 billion in reserves.

‘The changes being announced today will realign the HECM program with its original intent, which will aid in the restoration of the Mutual Mortgage Insurance fund and help ensure the continued availability of this important program,’ Galante wrote in her letter. ‘Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes.’

The new rules will go into effect in January.


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