As the reverse mortgage industry anxiously awaits either HUD or one of the lenders to fire the first salvo in the introduction of a financial assessment tool, the FHA revealed their intentions in an official statement: we want it, you first.
In the statement from the Desk of Acting FHA Commissioner Carol Galante, the FHA makes their case that given the economic climate and lack of changes to the HECM program over its 20 plus year history, FHA has been evaluating the program and "revisiting its regulations to propose and ultimately adopt changes that are necessary to make the HECM program even more successful."
Since some of the changes that the FHA would like to see (i.e. financial assessment) will likely need to go through the notice and comment rule making process, which Galante points out is a lengthy process, they are encouraging lenders to take the first steps.
Under the guise that it is ultimately the responsibility of FHA-approved lenders to engage in responsible lending practices, Galante is making the clear point that HUD does not prohibit the inclusion of financial and credit capacity assessment criteria in the origination and approval of HECM transactions. Such practices, she notes also other federal or state regulations or statues.
The idea of some form of financial assessment has been looming over the industry for more than a year when the issue of tax and insurance defaults first began to get coverage in the media. It is logical that such an assessment could reduce the percentage of borrowers who fail to maintain their obligations, it is just a matter of how it is implemented. In the absence of clear guidance, how will lenders respond?
With this statement, the FHA is stating that they are not ready to begin the rule making process on this issue, but clearly want to see the industry take steps to implement some type of process. Lenders are caught between implenting a tool that appropriately mitigates the risk of tax and insurance default, without placing severely limiting restrictions on the product. An overreaching approach to a limited issue could serve to put the program out of reach for those who benefit most from it.