Review of HUD ‘Very Pleased’ with Reverse Mortgage Changes
As they say, “Change is good!” The Department of Housing and Urban development, or HUD, released a statement on May 11th affirming that the changes made to the reverse mortgage program have been beneficial to the Home Equity Conversion Mortgage program.
One of the biggest changes has been effect since last April and it requires that those borrowers interested in obtaining a reverse mortgage must go through a financial assessment. Another component that was implemented a year ago included protections for “non-borrowing” spouses.
HUD officials and its senior policy adviser, Karin Hill have confirmed that the changes netted the desired results. Hill reflected, “We are very pleased-the program has stayed very stable and the changes resulted in the outcome we had hoped for.” One goal was to change the draw patterns of the reverse mortgage borrowers. Now, rather than taking out over 60 percent of their proceeds at closing, they are taking out less! In fact, since the changes were designed, the latest findings show that 63 percent of borrowers are drawing 60 percent or less of their “lump sum” proceeds. Hill explained that, “This has had a very positive impact on the risk profile of the program.” Another plus: borrowers are not readily opting for fixed rate reverse mortgages. Instead, around 89 percent of reverse mortgage borrowers are selecting adjustable rate loans instead.
Remember, these types of loans are known as the Home Equity Conversion Mortgage or HECM program. They allow senior homeowners to take out a portion of their property’s equity. The homeowner has the choice of withdrawing the funds through a line of credit, in a fixed monthly amount, lump sum, or combination of all three.
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Currently, HUD is working on a new HECM rule that will incorporate many of the recent program changes. In addition to soliciting comments from the general public, lenders can look forward to the publication of a revised HECM handbook as well as some clarifications of Financial Assessment details. HUD officials have expressed concern regarding the proportion of HECM-to-HECM refinance transactions that are currently up for closing, borrowers who are making large repayments shortly after closing and well as possible navigation issues involving reverse mortgage counseling.
Hill explained that, “Out in the field, we have to monitor how people are selling the program. Some things may not seem to be risk issues, but they are in fact risks.”
In the final analysis, HUD applauded the program modifications and the agency’s officials noted the positive impact they have had to the Federal Housing Administration’s Mutual Mortgage Insurance Fund.
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