WASHINGTON (9/ 13/13)--The Federal Housing Administration (FHA) has sent out Mortgagee Letter 2013-27 informing lenders of changes to the Home Equity Conversion Mortgage (HECM) program required under the Reverse Mortgage Stabilization Act signed into law Aug. 9.
The new law is intended to help the FHA make quicker changes to its reverse mortgage program and reduce the lengthy 18-month regulatory process that has been in place to finalize a rule. HECMs are federally insured reverse mortgages backed by the FHA's parent agency, the U.S. Department of Housing and Urban Development.
In a 2012 report to Congress, the FHA reported substantial stress in the HECM program and projected the economic value of the program's portfolio to be negative $2.8 billion. That sparked Congress to enact the new law that authorizes the secretary of HUD to "establish, by notice or mortgagee letter, any additional or alternative requirements that the Secretary, in the Secretary's discretion determines are necessary to improve the fiscal safety and soundness of the program."
In a Federal Register document published Thursday, which mentions the mortgagee letter, HUD notes the new HECM requirements will take effect for case numbers assigned on or after Sept. 30, with the exception of new financial assessment requirements and funding requirements. Those changes will take effect for case numbers assigned on or after Jan. 13, 2014.
The Federal Register notice solicits comment for a period of 30 days--ending Oct. 15--on the financial assessment requirements to be applied on or after Jan. 13, 2014.
The purpose of the financial assessment is to evaluate a mortgagor's willingness and capacity to meet their financial obligations and comply with the mortgage requirements.
The letter requires FHA-approved lenders to perform a financial assessment of all prospective mortgagors on all HECM transactions including traditional, refinance and purchase transactions. Key components of underwriting HECM loans include an analysis of credit history, a cash flow/residual income analysis, an analysis of compensating factors and extenuating circumstances and finally a determination of whether the HECM applicant is eligible for the loan.
Use the resource link to access the Federal Register document.