FHA Launching Probe of HECM Program

Mortgage & Real Estate

The Federal Housing Administration, facing a dramatic increase in technical defaults on reverse mortgages, will launch a major review of its program with a possible overhaul coming down the road.

“The time has come to reassess program options and origination requirements to ensure that the program serves its intended purpose and borrowers understand and are able to meet their obligations related to the transaction,” acting FHA commissioner Carol Galante says in an October 5 letter to lenders.

While that reassessment and rulemaking process will be a lengthy process, the acting commissioner is urging HECM lenders to start evaluating new borrowers now to make sure they can meet their tax and insurance obligations.

Such upfront assessments are not required under FHA regulations, but Gallant points out in the letter that such financial capacity assessments don’t violate fair lending laws or the Equal Credit Opportunity Act. 

With the U.S. economy in its worst condition since the Great Depression, seniors are finding it harder to pay their real estate taxes and insurance, prompting the agency to consider an overhaul to its home equity conversion mortgage program, or HECM for short.

FHA-insured HECMs do not require mortgage payments and instead the “borrower” actually receives monthly income but mortgagors are required to pay property taxes and homeowner insurance on their own.  

The federal mortgage insurance agency has taken several steps to address the problem over the past year, but now believes a major review is in order.

Daily Briefing | Friday, October 7, 2011

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