The Federal Housing Administration (FHA) is seeking feedback on a set of proposed measures that will further strengthen its Home Equity Conversion Mortgage (HECM) program, including making certain that required HECM counseling occurs before a mortgage contract is signed; requiring lenders to fully disclose all HECM loan features; and capping lifetime interest rate increases on HECM adjustable-rate mortgages (ARMs) to 5%.
In addition, the FHA is proposing to reduce the cap on annual interest rate increases on HECM ARMs from 2% to 1% and requiring lenders to pay mortgage insurance premiums until the HECM is paid in full, it is foreclosed on or a deed-in-lieu (DIL) is executed rather than waiting until the mortgage contract is terminated.
Reverse lenders would also be required to include utility payments in the property charge assessment and would have to create their own “cash for keys” programs to encourage borrowers to complete a DIL and gracefully exit the property versus enduring a lengthy foreclosure process.
The proposed rule would also include and clarify the previous rules enacted during the past two years that were designed to stem losses in the HECM program and improve the way the program works for seniors.
“We’ve gone to great lengths to protect seniors and ensure they can remain in their homes, where they’ve raised families and where they hope to live out their days,” says Ed Golding, principal deputy assistant secretary for housing at the U.S. Department of Housing and Urban Development, in a release. “As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure and sustainable financial option for future generations of senior homeowners.”
Since the passage of the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, the FHA has implemented several reforms to its HECM program, including limiting initial “lump sum” withdrawals to ensure the financial stability of the program and developing criteria to allow certain non-borrowing spouses to remain in the home following the death of their borrowing spouses.
In addition, lenders must now ask all applicants to undergo financial assessments to help borrowers better understand how the product works before signing a contract.
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