New FHA proposal puts reverse mortgages above HOA super liens

Success coming for the HECM super lien?

The Federal Housing Administration proposed a new rule today that could strengthen its Home Equity Conversion Mortgage Program.

Perhaps one of the largest reforms, is the prioritization of the HECM lien above all others — the establishment of a so-called "super lien."

"This rule proposes to require, as a condition for a HECM to be eligible for loan assignment, that the HECM mortgage be in lien status prior to homeowners association and condo association liens," the proposal states.

Super liens are a contentious issue, some states allow HOAs to hold this sort of position. Whether or not HECMs in states, such as Rhode Island, will get written without the ability to assign, remains to be addressed.

Read all of HousingWire's brilliant coverage on HOA super liens.

The program, created for seniors aged 62 or older and still living in their home, allows them to withdraw a portion of their home’s equity, according to the U.S. Department of Housing and Urban Development’s website.

Last year, the Consumer Financial Protection Bureau looked at 1,200 reverse mortgage complaints received from when the bureau started taking complaints, on Dec. 1, 2011, and Dec. 31, 2014. Reverse mortgage complaints comprised about 1% of all mortgage complaints, by all ages, during this timeframe.

On the other hand, there are reasons for taking out a reverse mortgage, and retirement expert Russell Powell makes a case for using a reverse mortgage as part of your retirement plans.

The FHA’s new rule would reinforce reforms from the past two years as well as add new ones for consumer protection.

“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, HUD principal deputy assistant secretary for housing.

“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,” Golding said.

Here are the changes the proposition contains:

  • Make certain required HECM counseling occurs before a mortgage contract is signed
  • Require lenders to fully disclose all HECM loan features
  • Cap lifetime interest rate increases on HECM Adjustable Rate Mortgages to 5%
  • Reduce the cap on annual interest rate increases on HECM ARMs from 2% to 1%
  • Require lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a deed-in-lieu is executed rather than until 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 deed-in-lieu and gracefully exit the property versus enduring a lengthy foreclosure process

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