Citing a disproportionate number of liabilities from borrowers in its reverse mortgage business, the Federal Housing Authority wants to make some quick changes. Legislation allowing that has passed its first hurdle in Congress.
The House of Representatives has passed the "Reverse Mortgage Stabilization Act," authorizing the FHA to immediately implement new requirements for what's officially called a "home equity conversion mortgage." Proposed changes to the reverse mortgage program include new reviews of borrowers' budgets, the establishment of escrow accounts for tax and insurance payments, and limits on the amount of upfront lump sums.
Reverse mortgages have been an option for homeowners who are 62 or older and want to turn their home equity into a fixed income in retirement. The lender pays a monthly payment for as long as the homeowner lives in the house or for a specified time period. The loans generally come with higher interest rates, fees and closing costs than traditional mortgages, making them an expensive option in many cases.
FHA hopes to avoid taxpayer bailout
The proposed changes to the reverse mortgage program are part of an effort by the FHA to bolster its mutual mortgage insurance fund, which was depleted during the housing crisis. The concern is that without changes, the FHA will have to ask the U.S. Treasury for taxpayer money to make up the losses.
The legislation now goes to the Senate. Peter Bell, president of the National Reverse Mortgage Lenders Association, told a Senate committee that the proposed overhaul would increase protections for consumers and improve the program's financial stability. In a statement, Bell noted that preserving the reverse mortgage program will enable it to "remain a useful tool for elderly homeowners while minimizing risks to the taxpayers."
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