Changes for Reverse Mortgages

Housing Regulator Prepares Changes for Reverse Mortgages
By Mary Ellen Podmolik Print Article

RISMEDIA, September 14, 2010—(MCT)—The Federal Housing Administration isn’t talking publicly about it, but the agency may be getting ready to lessen the upfront costs of reverse mortgages for some borrowers. The agency also, however, may be reducing the amount seniors can borrow from their homes.

In a recent conference call with industry participants, FHA officials said they were finalizing plans to offer a home-equity conversion mortgage with almost no upfront mortgage insurance premium attached, according to the National Reverse Mortgage Lenders Association. The FHA may also tinker with the traditional product in a way that increases the overall borrowing costs.

“HUD is looking at options to provide a lower-priced home-equity conversion mortgage option,” said Lemar Wooley, a spokesman for the U.S. Department of Housing and Urban Development. “We are still working out the details. Our basic plan is to make the product more attractive, while limiting FHA’s exposure to risk.”

A home-equity conversion mortgage is a federally guaranteed reverse mortgage designed to let homeowners 62 or older tap into the equity in their homes. The loans and accrued interest don’t have to be repaid until the owner sells the home, dies or fails to live there for one year, but the loans have traditionally carried significant upfront and annual expenses.

According to participants on the conference call, home-equity conversion mortgages would be split into two products this fall: a “standard” loan and a “saver” loan.

The saver loan would have an upfront mortgage insurance premium of 0.01% of a home’s value, but the amount of funds that could be borrowed, known as the principal limit, would be reduced by at least 10%, lowering the risk to the FHA, which guarantees the loans. Because a smaller amount could be borrowed, the saver loan could be marketed as an alternative to a home equity line of credit to seniors on fixed incomes who can’t make the monthly minimum interest payments required on such lines of credit.

Under the standard loan, the upfront mortgage insurance premium charged by the FHA would remain 2% of the property value (or a max of 2% of the FHA maximum loan limit of $625,500), and the principal limit would be cut by 1-5% of a home’s value, depending on the borrower’s age. The upfront mortgage insurance premium would remain 2%, said industry participants briefed on the plan.

For both loans, the monthly mortgage insurance premium, which is 0.5% of the mortgage balance for a traditional home equity conversion mortgage, would increase to 1.25%.

“For someone who needs a chunk of money, but not a huge chunk, we believe this will significantly broaden the appeal,” said Peter Bell, president of the National Reverse Mortgage Lenders Association. “They’re very smart changes.”

In the past few months, several reverse mortgage lenders decreased origination fees and closing costs, partly in a bid to increase demand for the product and partly to pass along some of the profit they’ve made as investors scooped up the loans on the secondary market. The saver product would further reduce the upfront borrowing costs.

The National Council on Aging, which has advocated the development of a more flexible reverse mortgage product for some time, views the coming changes as welcome news that the industry is moving past the one-size-fits-all mentality.

However, the advocacy group also sees potential pitfalls.

“The more flexibility there is, the more chance there is to be talked into something that doesn’t make sense,” said Barbara Stucki, vice president of home equity initiatives for the National Council on Aging.

In the past year, consumer advocates have voiced concerns about the marketing techniques used to tout reverse mortgages to seniors, a potentially vulnerable class of consumers.

Beginning Sept. 11, consumers interested in home equity conversion mortgage will have to undergo expanded counseling to better understand their options.

Stucki urges seniors to take full advantage of those expanded counseling efforts.

“Go talk to a counselor before you talk with a lender,” she said. “Don’t wait until you’ve talked with a lender and been talked into something. This counseling is something that can be an extraordinary teachable moment.”

(c) 2010, Chicago Tribune.

Distributed by McClatchy-Tribune Information Services.

Natalie Flaming
Realtor - Broker Associate
The VIP Team
Metro First Realty
Direct: 405.412.5452

HUD Proposes to Reduce Seller Concessions

HUD is proposing to lower the seller concessions to an FHA buyer from 6% to 3%. This will adversely affect buyers and an already struggling Real Estate housing recovery effort.

What is a seller concession? On an FHA loan of say $150,000 a buyer can request that a seller pay up to 6% of their allowable closing costs, which equates to $9,000. Now, of course, a seller is not required to pay 6% of a buyers closing costs but it is a negotiable part of the contract that often times determines if a buyer will in fact be able to afford all of the upfront costs. To reduce this to 3% means a buyer may request only up to $4,500. On the larger loans, this may be enough to cover all of the closing costs a buyer has. Where it will affect consumers most are the smaller sales prices. For example, on an $80,000 sales price, 3% would be $2,400, which will not be enough to cover everything.

The "typical" first time home buyer will now have to come up with not only the 3.5% down payment that FHA now requires (this was recently increased by HUD from 3% to 3.5% in an effort to strengthen the FHA loans), which on the same $150,000 sales price would be $5,250, but now will have to have the additional that would not be covered. A lot of times a thousand dollars is the difference between a buyer being able to buy a home and a seller being able to sell. The closing costs being paid do not even affect the terms of the loan. If the home value is there to make the concession, should the buyer be allowed to negotiate for it and should the seller be able to make the choice to concede to it?

The following is HUD's proposal in full.


HUD No. 10-150
Lemar Wooley
(202) 708-0685 FOR RELEASE
Thursday
July 15, 2010
HUD SEEKS PUBLIC COMMENT ON THREE INITIATIVES TO BOOST FHA CAPITAL RESERVES
New measures will help FHA control risk, continue supporting housing recovery
WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today unveiled three specific policy changes to strengthen the FHA’s capital reserves while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The U.S. Department of Housing and Urban Development today published a Notice, seeking public comment on three specific measures to reduce financial risk and preserve affordable mortgage financing for responsible consumers.

In addition to earlier steps taken to manage its risks and to boost reserves, FHA is proposing to update the combination of credit and down payment requirements for new borrowers; reduce seller concessions from six to three percent; and tighten underwriting standards for manually underwritten mortgage loans.

“These are the latest in a series of changes to allow the FHA to manage its risk better while continuing to support the nation’s housing recovery,” said Stevens. “By protecting FHA’s capital reserves, we can continue providing affordable, responsible mortgage products and will remain the nation’s largest source of home purchase financing for underserved communities.”

For the next 30 days, HUD is seeking public comment on the following policy changes, each of which are designed to mitigate risk to the Mutual Mortgage Insurance Fund while promoting sustainable homeownership for FHA borrowers:

1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.
2. Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.
3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.


To submit your thoughts on what reducing seller concessions will do to a housing industry that doesn’t seem to have enough buyers go to: HUD Seller Concession Feedback

(If the link above does not open properly, copy and paste this address into your browser: http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480b1a605)

You can also call your elected “representatives” to let them know how parts of this proposed rule will have a negative impact for the consumer and small business.

If you have any questions about this or any other Real Estate matter, feel free to call or email me.


Natalie Flaming
Realtor - Broker Associate
Metro First Realty
Direct: 405.412.5452
Natalie@TheVIPofOKC.com
www.TheVIPofOKC.com