HECM reverse mortgage

HECM reverse mortgage

FHA Makes Changes in HECM Reverse Mortgage Rules

Will there be new reverse mortgage rules in 2013?

Update - September 20, 2013 Since our last update on December 18, 2012 a lot has changed. First, the FHA abolished the Standard Fixed Rate HECM loan. Then, in September 2013 they announced big changes in their HECM loan, which will effectively lower the total loan available in the first year, and changes in the way the lender evaluates the borrower.

Thank you for your question about reverse mortgage rules. We have seen big changes in the Home Equity Conversion Mortgage (HECM) - or commonly referred to as reverse mortgages - program.

Background: Why Make Changes in the Reverse Mortgage Rules?

The two main reasons that the FHA is making the changes are:

1. The FHA is losing money and is on the brink of a bailout. A disproportionate amount of their losses are due to the HECM reverse mortgage program.
2. Due to the way the HECM loan is structured, many borrowers take out too much equity from their homes. Some borrowers are then left with insufficient funds to cover their monthly expenses.

In fact, Sen. Corker (Tennessee) suggested a moratorium on HECM loans.  Sec. of Housing and Urban Development (HUD) Shaun Donovan noted in his Senate testimony before the Senate Banking Committee on December 6 2012, that there is a real need for a reverse mortgage and it benefits some consumers.; however he too realizes that there is a need for major changes in the reverse mortgage rules. Some of these changes can be made by the Federal Housing Authority (FHA) and some require Congressional action.
Although no moratorium was made, real changes have been made to the reverse mortgage rules.

Quick Tip#1

Bills.com reminds you to move with caution. Learn about a reverse mortgage and its pros and cons and how to avoid scams.

Addressing the Main Reverse Mortgage Rules

Back in late 2012 Sec. Donovan indicated that the FHA is prepared to take short-term to long-term actions to rectify the problems in their reverse mortgage programs. Their goal is to create new reverse mortgage rules that will allow consumers to take a safer product.  In mid-September 2013, sweeping changes have been made in three main areas that will be addressed are shown in the chart below: