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HECM Program Causing Outsized Losses to FHA Fund

FEB 14, 2013 12:36pm ET
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The Federal Housing Administration is taking “aggressive actions” to protect seniors that take out FHA-insured reverse mortgages and protect the mortgage insurance fund, according to FHA commissioner Carol Galante.

While Home Equity Conversion Mortgages comprise only 7% of FHA-insured loans, it is generating 17% of the negative economic value of the fund, Galante told the House Financial Services Committee on Wednesday. (The FY 2012 annual actuarial report shows FHA has a negative economic value of $16.3 billion.)

To reduce the losses on the HECM program, FHA is dropping the fixed-rate standard HECM product which allowed borrowers to take out large lump sums at closing.

Starting April 1, seniors seeking a FHA fixed-rate reverse mortgage will have to turn to the HECM Fixed Rate Saver.

HECM loan volume declined 25% in FY 2012 from the previous year. “FY 2012 marks the third consecutive year in which HECM volume declined,” according to Galante’s testimony.

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