Following testimony from National Reverse Mortgage Lenders Association (NRMLA) president Peter Bell that the Department of Housing and Urban Development (HUD) needs authority to “act quickly, manage risk, and strengthen the federal reverse mortgage program,” the chairman of the committee that heard the testimony announced that HUD would be making the suggested changes and the Federal Housing Administration (FHA) would continue to support the reverse mortgage market. Reverse mortgage applications and approvals have been falling for months, with the volume dropping another 6.9 percent in February 2013, in large part because unpredictable home prices make it difficult for lenders to gauge future home value and lend an appropriate amount of money on properties. The changes Bell requested would fortify the FHA’s reverse mortgage program, Home Equity Conversion Mortgage (HECM), by establishing new underwriting rules specifically for HECM borrowers and implementing a new set of rules regarding “set-asides” for escrow, taxes and insurance and draws and utilization of funds. The new program would also enable seniors to temporarily use an HECM reverse mortgage in a manner similar to a home equity line of credit. The money could be repaid back into the HECM line of credit when seniors’ CDs or other investments mature.
Not surprisingly, reverse mortgages have declined in popularity since the housing bust, and many seniors who have reverse mortgages have faced “surprise foreclosures” as their home values plummeted and lenders attempted to recoup losses on reverse mortgages made during better times. Also, many seniors have found themselves on the losing end of a reverse mortgage when a lender stopped supporting these loans, sold the mortgages, or when the seniors themselves failed to pay property taxes or property insurance fees. Many big banks have stopped handling reverse mortgages altogether, including Bank of America, Financial Freedom, and Wells Fargo; these three lenders previously dominated the reverse mortgage market. Bell hopes that changes to FHA regulations on reverse mortgages could firm up the market on the transactions, which are still highly desired by many seniors. Presently, small banks are making most of the reverse mortgages in the country and the majority of those reverse mortgages are insured through the HECM program.