HUD revamps reverse mortgage program fees to stem losses

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WASHINGTON — The Department of Housing and Urban Development is revising its fees on federally insured reverse mortgages to reduce losses to its Home Equity Conversion Mortgage program.

The agency will charge higher upfront premiums for most borrowers while lowering the annual premium. Under the new system, the upfront premium will be 2% for all loans, replacing the variable rate between 0.5% to 2.5%, with the annual premium lowered to 0.5% from 1.25%.

This new fee structure will go into effect Oct 2.

"Given the losses we’re seeing in the HECM program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers," HUD Secretary Ben Carson said in a press release Tuesday.

HUD said it needed to make a change due to the flagging financial condition of the agency’s reverse mortgage program. Currently, every loan in the program originated today is projected to lose money, said Adolfo Marzol, a HUD senior adviser for housing finance.

The agency is also lowering the loan limits for older borrowers taking a new HECM loan, a move that will reduce originations to 20%, the agency estimated.

Industry representatives praised the move. David Stevens, president and chief executive of the Mortgage Bankers Association, said he “applauds” the announcement and looks forward "to continuing to work with policymakers” on fixes to the program.

The Home Equity Conversion Mortgage program is projected to report a loss for fiscal year 2017, which ends Sept. 30. However, HUD officials are hoping revenues from the Federal Housing Administration’s single-family program will cover those losses. If they don't, the FHA will have to borrow from the U.S. Treasury.

HUD officials said they expect the changes will "rightsize" the program so the new business will cover losses.

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