HECM Credit Underwrite Rule Coming Within 60 Days says HUD Official

The Federal Housing Administration (FHA) will require proof of creditworthiness from reverse mortgage borrowers, Bloomberg reported this week through its Terminal subscription service.

The article, titled, “Reverse Mortgages Decline Under New FHA Rules, Shrinking Equity,” captures many of the issues of interest to those in the business today. Among the article’s highlights: unreported defaults; the introduction of a reverse mortgage with the option of taking out less money and paying lower fees (the HECM Saver); loan limits and underwriting standards.

While the report states that “borrowers soon will be required to prove they are creditworthy before they can tap into their home equity,” the requirement is anticipated to appear in a draft of new rules by the FHA within the coming months.

“We want to ensure that the senior has the capacity to pay those property charges and maintain their home and ensure there’s no increased risk to FHA,” Vicki Bott, a deputy assistant secretary at FHA told Bloomberg. Bott said the the draft of the new FHA rule—which is expected within 60 days—will include a mechanism for ensuring borrowers have the ability to cover taxes and insurance costs associated with reverse mortgages.

Other topics covered in the report indicate an industry that has struggled. Bloomberg points to the $800 million subsidy the HECM program required two years ago, but fails to mention the smaller subsidy required this year and the lack of a subsidy in 2012. An unknown number of delinquencies is another point covered by Bloomberg, which quotes an analyst as saying it is likely the industry will see more delinquencies as the housing slump continues.

While the article certainly points to challenges the industry has faced, ultimately the picture may be a bit more hopeful. “Analysts say that while the federal government’s increasingly cautious approach may decrease loan volume in the near term, it may lay the foundation for long-term growth—ultimately helping reverse-mortgage lenders and securitizers including Wells Fargo & Co., MetLife Home Loans and Generation Mortgage Co.,” the article states.

Written by Elizabeth Ecker

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