Is HECM Down for the Count?

Beset by uncertainty in the housing market, the Home Equity Conversion Mortgage Program (HECM) is losing money and cannot continue on in its present form.

To make the program viable, FHA announced numerous necessary changes to the HECM Program to improve its financial health and ensure that it remains a resource for senior borrowers. According to HUD.gov's released HECM Fact Sheet, those changes include:

Implementing policy changes to HECM servicing. Particularly addressing defaults associated with unpaid property charges; facilitating property sales, and providing incentives to reduce delay in transferring eligible properties to FHA. These changes are effective September 19, 2017.

Adjusting Mortgage Insurance Premiums (MIPs). HECM’s annual MIP will be a one-half percent of the outstanding mortgage balance, reduced from the prior schedule for all borrowers from 1.25 percent. This change provides fee relief for all borrowers in the program and preserves more equity for borrowers over time by slowing the rate at which the loan balance grows. These changes are effective on October 2, 2017.

Adjusting the Principal Limit Factors (PLFs). The amount seniors can draw, or PLFs, will preserve the homeowners’ equity in the home if they choose to occupy the house for the expected life of the loan. New endorsements on or after October 2, 2017, will be subject to a new schedule. At current rates, PLFs will be lower compared to prior levels. As was the case with the prior PLF schedule, PLFs generally rise with borrower age and decline for higher interest rates.

None of the changes will impact current HECM borrowers; it will only affect new endorsements. Given the program’s unpredictable past, FHA will continue to carefully monitor the HECM program and the impact of these changes.

Click here to read FHA’s mortgage letter related to HECM’s new premiums and PLF schedule.