The nation's most popular type of reverse mortgage is being discontinued by the FHA, at least temporarily, the head of the agency has indicated.
FHA Acting Commissioner Carol Galante said that the agency will stop offering the Standard Fixed Rate Home Equity Conversion Mortgage (HECM) by Jan. 31, 2013. The loan type makes up the "great majority" of reverse mortgages authorized by FHA, according to Galante.
Almost all reverse mortgages in the United States are done through the FHA, with the exception of a small number of high-value loans originated through the strictly private market.
Wins support of Sen. Corker
The FHA policy change is one of several Galante committed to in a letter sent today to Sen. Bob Corker (R-Tenn.), a member of the Senate Banking, Housing and Urban Affairs Committee. After receiving the commitments, Corker said he would be comfortable supporting an appointment of Galante to be full commissioner.
Also known as the "full draw" reverse mortgage, the Standard Fixed-Rate HECM allows seniors to draw a payment as long as they remain in their home, even past the point where their equity is depleted. The FHA will continue to support a variable-rate version, as well as a product called HECM Saver, which has lower fees but a lower borrowing limit.
In her letter, Galante said the HECM program had suffered greater than expected losses in recent years, due to falling home prices and greater than expected life expectancy among seniors, as well as the lack of a secondary market willing to purchase the loans. She did not indicate how long the moratorium on the Standard Rate product might last.
Other rule changes coming
She said the agency will also be exploring other rule changes to the reverse mortgage program, including the establishment of formal guidelines for conducting financial assessments of borrowers and requiring set-asides to ensure that property taxes and homeowner insurance are paid.
Other policy changes Galante committed to in the letter included establishing stricter debt-to-income limits for FHA mortgage borrowers with low credit scores and steps to withdraw the FHA from the market for high-value mortgages.
The moves are intended to help shore up the FHA's financial position, which took a severe hit following the crash of the housing market several years ago. Sen. Corker had expressed concerns about the need to undertake such measures.