Loan Modification

FHA guidelines: Changes coming to FHA reverse mortgage program?

By Karen Lawson

The LA Times is reporting that FHA may implement changes to its reverse mortgage program that would cut up-front costs, but potentially increase the overall cost of FHA reverse mortgage loans. FHA has long been viewed as a safe source for reverse mortgage loans, which allow homeowners of age 62 and over to pay off their existing mortgages and/or draw on home equity for cash income. Although the theory of reverse mortgages may work, there are complexities and scams associated with reverse mortgages, and consumers tend to view FHA backed reverse mortgages as a safe option.

FHA mortgage loans: What’s up with reverse mortgages?

No changes to FHA guidelines for reverse mortgage loans have been made official, but during a conference call with mortgage lending industry representatives, FHA officials noted the agency’s intention to make reverse mortgage loans more affordable while balancing FHA exposure to risk. We’ll have to wait and see how FHA loan requirements for reverse mortgage loans are changed, but there are some concerns for cash-strapped homeowners who’ve seen their home equity diminish or disappear. How the concept of cashing out home equity and repaying reverse mortgage loans within current economic conditions and falling home values can continue working is questionable at best. It’s likely that FHA will reduce maximum loan amounts for reverse mortgage loans while cutting up front mortgage insurance costs, or they may allow larger loan limits and charge higher mortgage insurance premiums. What remains to be seen is whether or not reverse mortgage loans, also called home equity conversion mortgages or HECM loans, can continue to serve their intended purpose. FHA and mortgage lenders are concerned that a diverse choice of reverse mortgage loan types could lead to more misinformation, confusion among consumers, and additional opportunities for unscrupulous reverse mortgage programs.

FHA Reverse Mortgages Loans: Changes May be Coming

Potential, but again not final decisions for changing the HECM loan programs, include

• Reducing up-front mortgage insurance premiums and also reducing FHA loan limits for reverse mortgage loans by 10 percent.
• Increasing annual mortgage insurance premium (prorated monthly and paid as part of monthly mortgage payments) from .50 percent of the original loan amount to to 1.25 percent of the original loan amount.

The National Council on Aging is expressing concern about the potential for fraud and scams if more types of reverse mortgage loans become available. As with any experiment, its hypothesis, and outcome, we’ll have to wait and see how HUD/FHA update their reverse mortgage program, and the solutions they propose for changing how such mortgage loans can serve the public against a backdrop of crashing home values, long term unemployment and changing financial priorities.

Full post as published by FHA Mortgage Guide on September 20, 2010 (boomark / email).