FHA: Reverse Mortgage Program Changes on Six-month Horizon

The Department of Housing and Urban Development is actively seeking meaningful change to its Home Equity Conversion Mortgage program in an effort to protect its mortgage insurance fund and sustain the program long-term, a HUD representative told reverse mortgage professionals Monday. 

To provide long term stability for the reverse mortgage program, FHA is considering change in three areas to be expected in “short order,” the Administration’s Deputy Assistant Secretary Charles Coulter told attendees of the National Reverse Mortgage Lenders Association annual conference in San Antonio Monday. 

“We’re going to look at the financial assessment side of the business to make sure we put constructive policies in place, and the tax and insurance issue in general, and see how to create a set-aside or escrowing for borrowers so they are not hit with large tax payments they are not positioned pay,” Coulter said. “Those changes are vital, we’re focused on them and will continue to work with the industry and NRMLA to reach a point to make sure products are viable.” 

Among the current concerns of HUD on the use of reverse mortgage products today versus the intention of the product when it was designed, Coulter said, is the high percentage of fixed rate loans taken at a full, upfront draw. The percentage to date hovers around 69% fixed rate versus adjustable, according to HUD data. 

“Very few are using the product as an annuity,” Coulter said. “Most are using it to capture cash upfront. That is somewhat inconsistent with what you’d expect for product designed to help seniors age in place.”

The timeframe for change can be expected to be around six months, without a hard deadline in place. In the past, FHA has stated the intention to implement a financial assessment, but without putting any concrete guidelines in place. In 2011, HUD representatives told NRMLA conference attendees they were allowed to conduct an underwrite of reverse mortgage borrowers toward the prevention of tax and insurance default, and encouraged lenders to begin doing so. After a false start by MetLife, other lenders failed to follow in the process. 

“We’ve been talking about making appropriate changes to this program for some time. Now is the time to make those changes on product side.”

When asked about the time frame, Coulter responded without a set date, but a short term outlook. 

“It will take six months to see meaningful change,” he told RMD. 

Overall, the message was one of support for the program and maintaining it. 

“We need to make sure we are managing this product in efficient, effective way, so at end of day we have a viable product and program for the long term,” Coulter said.  

Written by Elizabeth Ecker

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