The Standard Fixed-Rate HECM Loan...A Thing of the Past
Earlier this year, the Federal Housing Administration removed the Standard Fixed-Rate Home Equity Conversion Mortgage from its list of available reverse mortgage products, leaving only the HECM Saver ("Standby" Reverse Mortgage) and the Adjustable-Rate Standard HECM.
During a Senate Banking Committee hearing on Tuesday, July 23, the assistant secretary for the Department of Housing and Urban Development, Carol Galante stated that there were no plans to reinstate the program, according to an article published by Reverse Mortgage Daily.
The Congressional hearing was assembled in order to discuss the FHA Solvency Act of 2013, which would require yearly reviews of premium levels and loan performance so that pricing and underwriting standards remain acceptable for consumers. In addition, the bill would hold lenders accountable for fraudulent or mismanaged loans.
In the hearing, Galante also made evident the necessity of the proposed changes to the reverse mortgage program, which, if not approved by Congress, would force the HUD to make further cuts to the reverse mortgage program (on top of the elimination of Fixed-Rate Standard).
"If we can't make those nuanced changes, we are going to have to say the entire amount [that can be borrowed] is going to be just lowered for everybody across the board."
However drastic, I think these proposed changes can potentially be beneficial to future homeowners, who will be better qualified and educated, when they apply for a reverse mortgage.
Current requirements include:
- Being 62 years of age and older
- Live in your primary residence
- Have enough equity in your home
Future requirements can potentially include a financial assessment, including credit history and scores though, making the process less inclusive but also more successful.
In the past, consumers, who have been unable to pay their homeowners insurance and property taxes, have faced foreclosure. If the proposed changes are implemented, borrowers will be more financially aware and prepared for the responsibilities, if they chose to apply for a reverse mortgage.
The permanent elimination of the standard fixed-rate demonstrates a significant retooling is underway for the reverse mortgage program as it tries to push forward, creating a healthier financial environment for future consumers.
Current programs, however, include many options such as tenure payments for the Adjustable-Rate Reverse Mortgage and the line of credit option on the HECM Saver. These programs will continue to be available in the future if Congress approves HUD's proposed changes.
It's not so much as a complete change to the reverse mortgage, but a way to continue to improve on what's available. The program must adapt to current and future changes in order to thrive; this is just one step toward making the HECM program better suited to sustain consumers in the future.