HUD Lowers Principal Limit Factors for FHA Reverse Mortgage Program

The U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) HECM program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs which the FHA case number is assigned on or after October 1, 2009.

All loans for which the FHA case number has already been assigned as of September 30, 2009 may be processed as usual. The lender need not change any of the calculations of principal limit or re-disclose to borrowers any changes in the HECM proceeds that the borrower will receive.

The announcement comes after the National Reverse Mortgage Lenders Association worked directly alongside AARP and FHA about what the industry’s options were. FHA felt that since the appropriations process is unlikely to provide credit subsidy, program changes are the only viable route for keeping the program operating past September 30, said a statement from NRMLA.

Since an appropriations bill hasn’t been passed yet, NRMLA told RMD that an interim measure known as a “continuing resolution” is being brought up in Congress. This will continue the suspension of the authorization cap on the HECM program, allowing HUD to continue insuring HECMs, but provides no credit subsidy.

Source

Reverse Mortgages = Subprime? Unfortunate Comparison says HUD Economist

What seems like an increasingly negative impression of the reverse mortgage business - among some consumers, media outlets and government representatives - has several practitioners wondering what can be done to counter these beliefs - and who might take the lead in such an effort. One reverse originator reportedly has asked an industry trade association to collect special fees from members to mount a counter-offensive, including but not limited to a significant marketing campaign.

It seems that subtly yet powerfully, there even has developed a growing notion that the reverse mortgage business is akin to (now-discredited) subprime lending, which is blasphemed for a wide-range of ills, not the least sparking a worldwide recession.

“It’s an unfortunate comparison,” asserts Ed Szymanoski, noted economist with HUD, in conversation with RMD. He points out that the FHA, principal guarantor for nearly all reverse mortgages today, “has lot of protections built in.”

Jeff Foody agrees. He is corporate education liaison, EquiPoint Financial Network, and regards any equation of reverse mortgages to subprime as nothing more than “sensationalism. People fear what they don’t know,” he says. Foody figures reverse mortgages have been “obscure for some time, so it’s easy to make [false] comparisons.”

One secondary market trader adds that the two mortgage sectors are “not anything at all alike. Reverse is all government-based lending, no one can compete on LTVs, and the rates are floored,” he points out.

Source