According to the FHA, â€œits HECM portfolio had experienced major changes in demographics and borrower preferences in recent years.Â Borrowers had originally tended to select adjustable rate mortgages associated with lines of credit which they could draw down over time.Â Then borrowers shifted to fixed rate mortgages with all available equity drawn out at closing.Â Â Falling home prices and use of the program by younger borrowers with higher debt levels also contributed to risk.â€
Here are a few of the new changes as announced by the FHA:
Â·Â Â Â Â Â Â Â Â Initial disbursement limits
Â·Â Â Â Â Â Â Â Â New Single Disbursement Lump Sum payment option
Â·Â Â Â Â Â Â Â Â Initial mortgage insurance premiums
Â·Â Â Â Â Â Â Â Â Initial mortgage insurance premium calculation for refinance transactions
Â·Â Â Â Â Â Â Â Â New principal limit factors
Â·Â Â Â Â Â Â Â Â Financial assessment requirements
Â·Â Â Â Â Â Â Â Â Funding requirements for the payment of property charges based on the financial assessment
This mortgagee letter and a Financial Assessment and Property Charge Guide were released at the same time, and provide guidelines for the financial assessment referenced above. The Guide explains â€œthe specific requirements that the mortgagee must use in performing credit history and cash flow/residual income analysis, documenting and verifying credit, income and property charges as well as valuing extenuating circumstances and compensating factors.Â The Guide also sets out parameters for determining if funding sources for property charges from loan proceeds can be required and evaluating the results of the financial assessment in determining HECM eligibility. The guidance is effective for loans assigned an FHA case number on or after January 13, 2014.â€
In announcing the revisions FHA Commissioner Carol Galante said, "The changes being announced today will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program. Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes."
Other recent HUD announcements-
As you know the mortgage industry is constantly changing! For more information on reverse mortgages contact me at 510.282.5456 or via email at firstname.lastname@example.org.