State of Reverse Mortgage Program in FHA Audit May Not be Threat for
Q&A with industry representative about financial hole at FHA by HECM
Nov. 29, 2012 – Just before Thanksgiving, the Federal Housing
Administration released its annual report to Congress that caused
concern among many senior citizens – it shows the Reverse Mortgage
Program $2.8 billion in debt. The FHA also requests
additional authority to manage the reverse mortgage program so that
consumers are better protected and able to sustain their program. Below
is a Q&A with representatives of All Reverse Mortgage on the industry
view of the situation.
The FHA insures most
of the reverse mortgages, which were created by the Department of
Housing and Urban Development (HUD) as the Home Equity Conversion
Mortgage (HECM). This program allows home owners age 62 or older to tap
into their home equity to while continuing to live in their home the
rest of their lives.
Over the past year,
FHA has insured 54,000 reverse mortgage transactions for seniors seeking
to age in place.
- While housing officials have pointed to potential changes to the
reverse mortgage program, no
changes have taken place yet. The potential changes may include a
reduction in the amount of funds a borrower can receive as a percentage
of his or her home equity through a reverse mortgage. Housing officials
have also said the Department of Housing and Urban Development may look
into limiting the uses of lump-sum reverse mortgages to paying off
certain types of qualifying debt.
Q - What does this mean for the FHA?
A - The FHA’s annual
audit showed the “capital position” of the administration is negative by
more than $13 billion. The Home Equity Conversion Mortgage reverse
mortgage program took another $2.8 billion from the agency’s economic
value. What it means is that FHA is short by that amount, should the
administration have to pay all of its outstanding insurance claims at
The implications are
far reaching—depending on whom you ask. On the one hand, the FHA is
mandated by law to hold a reserve fund with at least 2% of all insurance
claims outstanding. This is to protect the insurance fund from falling
into negative territory as it has this year.
As a result, the FHA
could call on the Treasury for the first time in history to cover the
potential losses the fund is facing. This action can be taken without
the approval of Congress, but won’t be decided until budget talks take
place in early 2013.
Q - Could it be worse?
A -Another school of
thought, however, on the FHA’s capital position is the fact that the
hole could have gone even deeper.
FHA has greatly
increased its presence in the mortgage market following the departure of
private capital from the market as a result of the housing crisis. The
agency has offered several special programs such as the Home Affordable
Modification Program to aid borrowers in refinancing their mortgages so
they can stay in their homes or purchase new ones.
Had it not been for
FHA’s role throughout the
housing crisis, there could be many more Americans facing foreclosure.
by FHA showing improvement in HECM (Revere Mortgages) deficit.
Q - What do seniors get from FHA’s insurance?
A -FHA’s insurance
provides several important protections to reverse mortgage borrowers.
First, the FHA guarantees the borrower will receive all payments as
agreed upon by the lender and borrower at the time of the loan closing.
Second, the insurance
guarantees that the borrower will never owe more to repay the loan than
the home is worth at the time of sale. This is a critical benefit to
many people in the current housing market whose homes may have gone down
in value over time.
As a borrower, once
the loan becomes due for you or your heirs, you can rest assured that
the sale of your home will cover the loan and interest repayment if you
opt to repay the loan by selling your house.
If you already have
an FHA-insured reverse mortgage, you should see no change in your loan
whatsoever as a result of the housing department audit.