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FHA Proposes Enhancements to HECM Program

Home Protection BHIn order to strengthen its Home Equity Conversion Mortgage (HECM) [1] program and offer protections to seniors who want to age out in their homes, the Federal Housing Administration (FHA [2]) announced on Wednesday it has proposed a new rule [3].

FHA has implemented several reforms to improve the HECM program since the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013. One of those changes, implemented in June 2015 [4], helps surviving non-borrowing spouses avoid foreclosure and stay in their home after the death of the borrowing spouse. Other reforms include limited initial withdrawals to ensure financial stability of the program; required financial assessments for HECM borrowers to determine if their reverse mortgage is sustainable in the long-term; and strengthening prohibitions against deceptive advertising of HECM programs.

“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 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.”

The changes proposed on Wednesday to the HECM program will reinforce some of the previous reforms as well as adding new consumer protections to help senior borrowers. Those changes include: requiring HECM counseling before a contract is signed; requiring lenders to fully disclose all HECM loan features; requiring lenders to pay mortgage insurance premiums until the HECM is either paid in full, foreclosed on, or a deed-in-lieu of foreclosure is executed instead of until when the mortgage contract is terminated; and creating a cash for keys program which encourages borrowers to gracefully exit the property by completing a deed-in-lieu instead of through an arduous foreclosure process.

Click here [3] to read the proposed rule.