HUD Raises HECM Fees, Tightens Loan Limits

HUD on Tuesday said it will raise upfront fees and tighten distribution limits of its Home Equity Conversion Mortgage Program.

In a conference call and through a fact sheet issued yesterday (, HUD acknowledged the HECM program continues to lose money. Last year, HUD said the value of its HECM insurance fund fell to -$7.7 billion in fiscal 2016, from +$6.8 billion in fiscal 2015. It said nearly 90,000 (of nearly 650,000) existing FHA-insured HECM borrowers were more than a year behind on property tax or insurance payments.

The increase in upfront fees, to 2.0 percent, are intended to stabilize the FHA Mutual Mortgage Insurance Fund and avoid the department having to ask for additional monies from the Treasury Department to cover losses resulting from borrowers.

“Quite simply, the HECM program is losing money and can no longer remain viable in its present form,” the fact sheet said. “Today, younger, lower-income homeowners with traditional FHA-insured ‘forward mortgages’ are routinely bailing out the HECM program through the mortgage insurance premiums they pay, placing a significant burden on the overall health of FHA’s Mutual Mortgage Insurance Fund.”

Mortgage Bankers Association President and CEO David Stevens, CMB, issued a statement yesterday commending the changes, saying they will strengthen the FHA fund and lessen risk to taxpayers.

“Reverse mortgages are an important financial product for our nation’s seniors, but the program needs to remain financially viable if it is to continue to offer its benefits into the future,” Stevens said. “MBA looks forward to continuing to work with policymakers on this issue and others to ensure the long term health of all FHA programs and improve the lending process for consumers and the industry alike.”

The fact sheet noted the following changes:

–Effective Oct. 2, all borrowers will pay a standard 2 percent upfront insurance fee. Currently, new borrowers pay just 0.5 percent while others pay as much as 2.5 percent.

–The annual mortgage insurance premium will fall to 0.5 percent from 1.25 percent

–Also beginning Oct. 2, the average borrower can draw 58 percent of the value of their home’s equity, down from 64 percent, with limits varying by the borrower’s age and the loan’s interest rate.

HUD said none of the changes will impact current HECM borrowers, but will affect new endorsements.