"The Federal Housing Administration (FHA) proposed a new rule to strengthen its Home Equity Conversion Mortgage (HECM) Program*. In addition to formalizing many of the structural improvements announced recently, FHA's proposed rule is intended to make certain FHA-insured reverse mortgages remain a viable and sustainable resource for senior homeowners hoping to remain in their homes and age in place. Read FHA's proposed rule."

"We've gone to great lengths to protect seniors and ensure they can remain in their homes where they've raised families and where they hope to live out their days," said Ed Golding, Principal Deputy Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development (HUD). "As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure, and sustainable financial option for future generations of senior homeowners."

In the past two years, FHA implemented several reforms to improve its HECM Program. *[HECM stands for Home Equity Conversion Mortgages for Seniors]. The proposed rule  will reinforce those changes and add new consumer protections to make certain senior borrowers are sustained in their homes. These new changes 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.

Background

Since the passage of the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, FHA implemented several reforms to its HECM Program, which include:

• Limited initial withdrawals to ensure the financial stability of the program;
• Developed criteria to allow certain non-borrowing spouses to remain in the home following the death of their borrowing spouse;
• Expanded home retention options that mortgage servicers can offer to senior borrowers who have failed to pay property taxes and hazard insurance premium payments;
• Required financial assessments for HECM borrowers to help to make certain their reverse mortgage is sustainable in the long term (i.e., to ensure senior borrowers have adequate income to cover routine property maintenance, pay property taxes, etc.); and
• Strengthened FHA’s prohibition against misleading or deceptive advertising of the HECM Program.

A May 2016 Consumer Reports article, Reforms Come to Reverse Mortgages, is compelling reading for its well-researched history and concerns:

"Karen’s experience is the kind of horror story that has long led some consumer advocates and financial planners to consider reverse mortgages too risky, a loan of last resort. In addition to problems when a surviving spouse isn’t on the loan, these compounding-­interest loans can be expensive. And seniors who can’t keep up with taxes, insurance, and home upkeep risk defaulting on the loan and losing their house.

"But over the past three years, new government regulations aimed at protecting older borrowers and shoring up the government-­backed loan program have gone into effect.

"To be sure, the loans remain a poor choice for some, and at Consumer Reports we believe more reforms are needed. But some experts say that for certain homeowners, with the new regulations in place, it may make sense to consider a reverse mortgage."