HUD Changes to Reverse Mortage Requirements
On Tuesday, August 29, 2017, the Department of Housing and Urban Development (HUD) announced that it is changing the requirements for its reverse mortgage program. The changes are expected to help protect taxpayers while still pursuing the mission of the program. The purpose underlying the changes is to protect other programs in place that are also funded through the Federal Housing Administration’s (FHA) insurance fund. The FHA insurance fund supports several programs including single-family loan programs and first-time homeowner programs. The federal reverse mortgage program has been plagued with problems that have created a drain on the agency’s overall finances. HUD officials claim that the changes will head off the need for massive Congressional intervention to save all FHA programs.
A reverse mortgage (technically called a “home equity conversion loan” or “HECM”) is an FHA-insured loan product available to senior homeowners who are age 62 or older. The HECM loan allows homeowners to convert a portion of the equity in their homes into cash. The program was developed to help retired individuals use the value in their homes to help cover ordinary living expenses. One of the most attractive aspects of a reverse mortgage is that the borrower is not required to make monthly payments of principal and interest on the loan as long as he or she continues to live in the home.
Beginning October 2, 2017, new limits on how much senior borrowers can access from the equity in their homes under the HECM program will take effect. HUD announced that it is adjusting the program’s Principal Limit Factors (PLF’s), which cap the amount senior borrows can draw. The “cap” is based, in part, upon actuarial calculations of the expected longevity of the borrower(s) and the appraised value of the property. After October 2, 2017, new HECM borrowers will pay lower annual FHA Mortgage Insurance Premiums (MIPs), however this lower rate is counter balanced by a higher initial premium payable at closing. The initial MIP will be 2% and the annual MIP will be .5% of the outstanding mortgage loan balance. The changes will only affect reverse mortgages originated after the effective date.
September 20, 2017