FHA Proposes New Rule to Strengthen HECM Program

The Federal Housing Administration (FHA) is proposing a new rule that it claims will strengthen its Home Equity Conversion Mortgage (HECM) program. 

The proposed rule includes changes and consumer protections designed to help ensure senior borrowers are sustained in their homes. These new changes include confirming that HECM counseling occurs before a mortgage contract is signed, requiring lenders to fully disclose all HECM loan features, capping lifetime interest rate increases on HECM adjustable-rate mortgages to five percent, while reducing the cap on annual interest rate from two percent to one percent, and mandating that lenders 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.

Furthermore, the new rule will allow utility payments to be considered in the property charge assessment process. And a new “cash for keys” program will be launched that encourages borrowers to complete a DIL and exit the property rather than face a lengthy foreclosure process.

“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 & 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.”