FHA Clamps Down on HECMs, Jumbos

In addition to the HECM restriction, HUD plans to proposes an increase the downpayment requirements on FHA jumbos, making those higher balance loans harder to get. Image: Fotolia

The HECM Saver will be the only fixed-rate reverse mortgage product available to seniors starting April 1, according to the Federal Housing Administration.

As part of a commitment to Sen. Bob Corker, R-Tenn., FHA officials agreed to stopping insuring fixed-rate standard HECMs because of technical defaults and the aggressive marketing of this product by reverse mortgage lenders.

“To help sustain the program as a viable financial resource for aging homeowners, the HECM Fixed Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage,” FHA said Wednesday afternoon.

The FHA commissioner, Carol Galante, issued Mortgagee Letter 2013-01 outlining Home Equity Conversion Mortgage program changes.

In the next few days, the Department of Housing and Urban Development will roll out other changes to the FHA single-family program.

This will include an increase in annual premiums on FHA-insured mortgages by 10 bps and require borrowers to pay premiums during the entire life of the loan. Currently borrowers can cancel FHA mortgage insurance after the LTV ratio reaches 78%.

Manual underwriting will be required for borrowers who have a credit score below 620 and a total debt-to-income ratio greater than 43%.

At this time, it is unclear when these changes will go into effect.

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” Galante said. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

HUD secretary Shaun Donovan and Galante agreed to most of these FHA reforms after intense negotiations with Corker in December. The Tennessee senator then supported Galante’s confirmation by the Senate to be a HUD assistant secretary and remain the FHA commissioner.

HUD also is preparing to issue a Federal Register notice in the next few days that proposes to increase the downpayment requirements on FHA jumbos (above $625,500) from 3.5% to 5%. Annual premiums are on jumbos are slated to go up 5 bps to 155 bps.

And Galante served notice that FHA intends to crack down on lenders that “aggressively” market FHA-insured loans to borrowers that went through a foreclosure in the past three years. FHA may impose counseling requirements on borrowers with a foreclosure in their credit history.