The Federal Housing Administration (FHA) has announced plans to modify its Home Equity Conversion Mortgage (HECM) reverse mortgage product to make it more attractive and cost-effective for homeowners, according to the National Reverse Mortgage Lenders Association (NRMLA).
In a telephone briefing to prepare industry participants for upcoming changes to the HECM program, U.S. Department of Housing and Urban Development (HUD) Deputy Assistant Secretary Vicky Bott shared HUD's plans to implement a new variant of the product – referred to as the ‘HECM Saver’ – that will provide seniors with a reverse mortgage option that significantly lowers up-front costs by virtually eliminating the up-front mortgage insurance premium (MIP) that is required under the standard HECM option, the NRMLA reports.
Bott also reported accompanying changes intended for the existing HECM product, now referred to as a ‘HECM Standard.’ The introduction of the HECM Saver and changes to the HECM Standard are expected to be effective shortly after the new federal fiscal year begins this October.
The primary difference between the two HECM options will be in the cost of the up-front MIP and the amount of the funds, or principal limit, available to borrowers. The up-front MIP is charged by the FHA to support its insurance fund.
Under the HECM Standard option, the up-front MIP will remain at 2% of the value of the property (or 2% of the maximum FHA loan limit of $625,500, if the property has a value greater than that). HECM Saver will have an up-front MIP of 0.01% of the property's value.
This cost saving in up-front fees is achievable because the principal limit under a HECM Saver will be reduced, lowering the risk to the FHA insurance fund. Borrowers will receive approximately 10% to 18% less under the HECM saver option than they would under the HECM Standard option, the NRMLA says.
Peter Bell, president of the association, praised the re-engineering of the HECM program.
‘The up-front mortgage insurance premium has been a deterrent to some prospective borrowers, particularly those needing less than the full amount available under the traditional HECM Standard program,’ Bell says. ‘This new variation, the HECM Saver, presents a sensitive response to their needs.’
This new change comes about as HUD is also in the process of implementing a new, updated Counseling Protocol for prospective reverse mortgage borrowers, which takes effect Sept.11.