Legislation needed to reduce financial risk for reverse mortgage borrowers has now been approved by both chambers of Congress. Late Tuesday evening, the Senate passed The Reverse Mortgage Stabilization Act, which the House approved on June 12. The bipartisan bill would “authorize the secretary of Housing & Urban Development to establish additional requirements to improve the fiscal safety and soundness” of the Home Equity Conversion Mortgage (HECM) program.
In order to more appropriately match loans with potential borrowers, leaders at HUD asked for the authority to quickly add consumer safeguards and make other changes to improve financial performance of the HECM insurance fund.
“HUD officials have been responsive and responsible administrators of the federal HECM program since it was created more than two decades ago,” said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association. “This legislation gives them the authority to use HUD’s experience to make changes that will better meet the needs of borrowers.”
Among the changes HUD is considering are:
►Financial assessments of HECM applicants to determine if they have the capability of meeting the responsibilities of the loan—including tax and insurance payment obligations;
►Mandating the set-aside of funds for tax and insurance payments to ensure borrowers can meet those obligations;
►Restrictions on the amount of proceeds that can be drawn initially, in order to prolong the useful life of the assets; and
►Including all borrower spouses on loans—regardless of the spouse’s age, as protection for either spouse against losing the home upon passing of the other.
“All of these changes consider both the best interests of borrowers and the ongoing health of the government insurance fund,” Bell said. “Historically, HUD has made smart changes to improve the HECM program, strengthen the insurance fund, and fulfill its mission of helping aging Americans maintain and remain in their homes.
“The importance of reverse mortgages as a financial tool for American seniors brought together leaders in both parties, both chambers of Congress and the Administration. In particular, I would like to thank Sens. Robert Menendez, Tim Johnson and Mike Crapo, as well as Congressmen Denny Heck and Michael Fitzpatrick for their leadership in getting this bill to the finish line.”