HUD proposes HECM changes

A new rule has been proposed by the Department of Housing and Urban Development (HUD) to strengthen its Home Equity Conversion Mortgage (HECM) program. The proposed rule is intended to make certain Federal Housing Administration-insured reverse mortgages remain a viable and sustainable resource for senior homeowners hoping to remain in their homes and age in place. The changes would:

• Make certain that required HECM counseling occurs before a mortgage contract is signed;
• Require lenders to fully disclose all HECM loan features;
• Cap lifetime interest rate increases on HECM Adjustable Rate Mortgages (ARMs) to five percent.
• Reduce the cap on annual interest rate increases on HECM ARMs from two percent to one percent;
• Require lenders to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a Deed-in-Lieu (DIL) is executed rather than until when the mortgage contract is terminated;
• Include utility payments in the property charge assessment; and
• Create a “cash for keys” program to encourage borrowers to complete a DIL and gracefully exit the property versus enduring a lengthy foreclosure process.

The proposal was published in today's Federal Register at 81 FR 31769. Comments will be accepted through July 18, 2016.