Questions and Answers for Housing Counselors on Recent Changes to HUD-FHA's HECM Program
What are the changes HUD made to the Home Equity Conversion Program (HECM) program?
On August 29, 2017 HUD announced changes to its HECM program, effective October 02, 2017. The changes are needed to put the program on a more sustainable path. According to FHA’s 2016 Annual Report, last year alone, the economic value of the program was a negative $7.7 billion. Additionally, the President’s Budget explicitly stated the program would need changes in FY 2018. Specifically, the May 2017 President’s budget noted, “Since the passage of the Reverse Mortgage Stabilization Act in 2013, FHA has implemented several changes to strengthen and enhance the HECM program; further changes will continue into fiscal year 2018.” The HECM losses are making it increasingly challenging for FHA to maintain the overall level of reserves that Congress requires for the FHA Mutual Mortgage Insurance Fund (MMI Fund). Without the changes announced in August, the HECM Program would require an appropriation from Congress to endorse new reverse mortgages in FY 2018. HECM program changes include adjusting Mortgage Insurance Premiums (MIPs) and revising the amount of equity seniors can draw from a HECM. See the FHA Mortgagee Letter 2017-12 for details about the policy changes.
Why did HUD make these changes?
The changes help reduce the risk associated with foreclosure and could increase the amount of equity that HECM borrowers will retain in their homes as they age in place or pass it on to heirs. The changes are needed to ensure the financial stability and long-term sustainability of the HECM program.
How do these changes impact borrowers in the process of getting a HECM?
The new policies are effective for case numbers issued on or after October 02, 2017. If you are in the process of obtaining a HECM mortgage and have already completed HECM Housing Counseling and had a case number assigned to your loan application prior to October 02, 2017, the new policies will not affect you. If you are applying for a HECM mortgage and have a case number on or after October 02, 2017, your HECM mortgage will be originated according to the new HECM policies.
How will the new changes affect borrowers?
With the implementation of the new policies, a borrower may pay a higher initial mortgage insurance premium, but will pay lower annual mortgage insurance premiums over the life of the loan. Additionally, borrowers may see a modest reduction in the amount of the loan proceeds available to them, but the full impact is dependent on the interest rates agreed upon by the borrower and lender. HUD reverse mortgage counselors should review the new HECM principal limit factor tables and the terms of the loan with each client to ensure they have adequate information to help them make informed decisions about the best options.
What happens if I cannot schedule a counseling appointment or get a counseling certificate before the effective date of policy changes?
HECM counselors receive specific training and must demonstrate understanding of the HECM program in order to provide the specialized counseling required before a borrower obtains a HECM. As a result, HECM counselors may not be equipped to handle unusual spikes in demand for HECM counseling. HUD is working with its approved HECM counselors to ensure the greatest availability of counseling resources in advance of this policy change, but cannot guarantee that all borrowers will be able to complete counseling prior to the effective date of these policy changes. Borrowers unable to complete counseling who receive a case number through their lender prior to October 02, 2017 will still be able to participate in the HECM program, but will have their HECMs originated in accordance with these new polices.
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