Senate Passes FHA Bill, Could Allow Two Product Reverse Mortgage Solution

The Senate approved legislation giving the Secretary of the US Department of Housing and Urban Development the ability to increase annual premiums for single family loans insured by the Federal Housing Administration late Wednesday night.

HR 5981permits FHA to increase its annual premiums for “forward” loans from from 0.55 percent to 1.55 percent.  The agency also said it plans to raise annual premiums for HECM loans from 0.50% to 1.25%.

“While premium increases are never ideal, this bill was necessary to help improve the strength and stability of FHA’s single family programs,” said Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association.  “We are encouraged that FHA Commissioner Stevens has indicated he may not need to raise premiums to the maximum, and we believe that that a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium, will help stabilize FHA while lowering closing costs for many borrowers.”

The could also give HUD the ability to adjust premiums for a two reverse mortgage product approach outlined by Colin Cushman, Director of Portfolio Analysis at HUD earlier this year during a conference in Washington, DC.

The proposal includes the current HECM product with higher annual premiums and the “HECM Saver” would provide borrowers with less in proceeds but without an upfront premium. Designed to be a pay as you go product, Cushman said it would help lower the risk to the FHA insurance fund and offer borrowers an additional option not currently available.

According to the National Reverse Mortgage Lenders Association, it’s awaiting confirmation from HUD’s Office of General Counsel that the language in the bill does in fact provide the flexibility needed to implement the HECM Saver. “Early indications are that it does, but we await official confirmation,” said the association.

The bill passed the House last week and now heads to President Barack Obama who is expected to sign the bill into law.

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