) has announced a set of moves to improve the financial health of its Home Equity Conversion Mortgage (HECM) Program, which it says “is losing money and can no longer remain viable in its present form.”
The moves include the implementation of policy changes to HECM servicing, adjusting mortgage insurance premiums, and adjusting the amount seniors can draw.
“Given the losses we’re seeing in the HECM program, we have a responsibility to make changes that balance our mission with our future responsibility to protect taxpayers,” said Department of Housing and Urban Development Secretary Ben Carson. “Fairness dictates that future HECM loans do not adversely impact the overall health of FHA's insurance fund, which supports the financing needs of younger, mostly first-time homeowners with traditional FHA mortgages. We're taking needed and prudent steps to put the HECM program on a more sustainable footing so that it can remain a resource for senior borrowers.”
Changes to mortgage servicing follow a final rule published by the FHA early in 2017. The rule, which is effective Sept. 19, addresses defaults related to unpaid property charges, property sales once a loan becomes “due and payable,” and incentives to improve the conveyance of eligible properties to FHA.
Additionally, effective Oct. 2, new borrowers under the HECM program will see their initial mortgage insurance premiums (MIP) adjusted to a standard 2.0% of the maximum claim amount, compared to the prior premium rates of 2.50% for higher draws and 0.5% for lower draws. Annual MIPs for HECMs will be 0.5% of the outstanding mortgage balance, an adjustment from the prior schedule of 1.25% for all borrowers.
For new endorsements on or after Oct. 2, the principal limit factor, or the amount seniors can draw, will be adjusted according to a new schedule. Given current rates, the amounts will now be lower than prior levels. Like the previous schedule, the amounts vary according to the age of the borrower and the interest rates.
FHA said current borrowers will not be affected by the changes, which will only affect new endorsements for 2018.
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The Federal Housing Administration (