The Federal Housing Administration continues trying to refine its policies and procedures on Home Equity Conversion Mortgages for lenders, the goal of which is to ensure more vulnerable senior borrowers aren’t confused or mislead in the loan process.
Lenders in the HECM program must certain older borrowers are fully informed of all their options when applying for reverse mortgages, and underscored the agency’s prohibition against misleading or deceptive advertising.
“Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them,” said FHA Commissioner Carol Galante. “This guidance is intended to make sure lenders know we’re keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices.”
FHA’s guidance is intended to protect HECM borrowers from misleading advertising and presentations that appear to limit their options rather than informing them of the full range of available HECM offerings.
FHA-approved lenders are required to explain in clear, consistent language all requirements and features of the HECM program and may not mislead or otherwise cause a senior borrower to believe that the HECM product contains any features or limitations that are inconsistent with FHA’s requirements.
The lender must explain that:
FHA insures fixed interest rate mortgages, as well as annual and monthly adjustable interest rate mortgages, and that the borrower has the ability to change the method of payment under the reverse mortgage ARM products at any time provided funds are available.
The must also be informed that fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option where there is a one-time draw at loan closing and no future draws post loan closing.
Also underscored: Mortgagees may not state or imply that as a result of their approval to participate in FHA programs that any of their products have been endorsed by FHA or the Department of Housing & Urban Development.
Several flaws began showing in the FHA’s HECM program over the past year, which promoted the FHA to up efforts to ensure more housing counseling, financial assessments and reviewing a borrower’s ability over the long term to sustaining their reverse mortgage.
Last summer, Congress passed the Reverse Mortgage Stabilization Act, which established additional requirements to improve the fiscal safety and soundness of the HECM program.
"HUD officials have been responsive and responsible administrators of the federal HECM program since it was created more than two decades ago," said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, at the time. "This legislation gives them the authority to use HUD’s experience to make changes that will better meet the needs of borrowers."