HECM Program 2012: Back in the Black, No Subsidy Needed

After two years of subsidy requests, the Federal Housing Administration’s Home Equity Conversion Mortgage program will not require additional financial support from Congress to operate in 2012 according to President Obama’s budget released on Monday.

The administration projects FHA will insure 75,027 HECM units totaling $20 billion of reverse mortgages in fiscal year 2012.

The last two budgets haven’t indicated as positive an outlook for the program. During the economic downturn, the Office of Management and Budget included a $798 million subsidy request for FY 2010, followed by a $250 million request for FY 2011.

To ensure the program is cash flow-positive, the Department of Housing and Urban Development (HUD) made several changes to the program. In 2010, the agency slashed principal limits across the board by 10%, lowering the amount of money available to borrowers. The following year, it raised the mortgage insurance premium to 1.25% and lowered principal limit factors for older borrowers.

Another change was the introduction of the the HECM Saver, a lower cost reverse mortgage that provides less in proceeds to borrowers. With the launch of the Saver in October 2010, HUD said it would offset some of the HECM Standard risk and ensure the program broke even.

“Your ability to operate the HECM Saver and use it as much as you possibly can will enable us to keep the Standard alive and thriving,” said David Stevens, FHA Commissioner during a speech last year at the National Reverse Mortgage Lenders Association’s annual conference.

While there has been doubt about the success of the program, RMD reported in January that MetLife Bank’s proportion of Savers could be as high as 20% of its reverse mortgage business, providing a good sign for that goal, and for turning the HECM program into a cash flow-positive program.

See the full budget for HUD.

Written by Elizabeth Ecker

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