On May 19, 2016, the Federal Housing Administration proposed a rule that would codify several changes to FHA’s Home Equity Conversion Mortgage (HECM) program that were previously issued under the authority granted to HUD in the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013. The proposed rule would make additional regulatory changes.
Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. Generally, homeowners age 62 or older that have paid off their mortgage or paid down a considerable amount, and are currently living in the home, may participate in the FHA’s HECM program. The only reverse mortgage insured by the federal government is a HECM, and HECMs are only available through an FHA approved lender. According to the FHA, the changes in the proposed rule would:
- Make certain that required HECM counseling occurs before a mortgage contract is signed;
- Require lenders to fully disclose all HECM loan features;
- Cap lifetime interest rate increases on HECM Adjustable Rate Mortgages (ARMs) to five percent.
- Reduce the cap on annual interest rate increases on HECM ARMs from two percent to one percent;
- Require lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a Deed-in-Lieu (DIL) is executed rather than until when the mortgage contract is terminated;
- Include utility payments in the property charge assessment; and
- Create a “cash for keys” program to encourage borrowers to complete a DIL and gracefully exit the property versus enduring a lengthy foreclosure process.
Comments may be submitted electronically through the Federal eRulemaking Portal at www.regulations.gov. Comments are due by July 18, 2016.