Reverse Mortgage Stabilization Act Aims To Stem FHA’s Losses

13950_house6.13 Reverse Mortgage Stabilization Act Aims To Stem FHA's Losses Legislation passed in the House of Representatives Wednesday would limit the size of initial lump sum payments that lenders offer reverse mortgage borrowers and require escrow accounts to cover taxes and insurance.

The Reverse Mortgage Stabilization Act of 2013, the first bill introduced by rookie Congressman Denny Heck, D-Wash., would help the Federal Housing Administration (FHA) protect itself from even greater reverse mortgage losses by allowing it to sidestep the normal rulemaking process that can stretch out for months or even years.

The FHA is facing up to $5 billion in reverse mortgage losses this year and may need a bailout totaling up to $1 billion in order to shore up its reserves. The FHA incurred the bulk of the losses when millions of homeowners took out reverse mortgages, 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 FHA-backed legislation passed in the House Wednesday may need to be reconciled with a similar bill introduced in the Senate by Sen. Robert Menendez, D-N.J.

The FHA has until Sept. 30 to decide whether it will need a cash infusion from the Treasury. Should a bailout be required, it would not require congressional approval. What's more, it would be the first bailout for the agency in its 79-year history.

In an effort to increase revenue, the FHA recently increased its mortgage insurance premiums and started requiring most borrowers to carry the insurance for the duration of their 30-year loans.


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