HUD proposed 11 changes to the HECM program- here are the six most notable

HUD proposes numerous changes to the Home Equity Conversion Mortgage in Congressional Report. Here’s what you need to know.

Welcome back to the Industry Leader Update. First two good pieces of news. Last month was notable for the highest number of HECM endorsements in March since 2011. Second, the HECM program is running in the black (what HUD officials refer to as a negative credit subsidy) meaning no additional appropriations are needed to cover the costs or claims of the program. Both of these we can attribute to historically low-interest rates and a record increase in home price appreciation. All this helps HUD generate a positive budget proposal for Congressional approval. 

The 420-page document that accompanies the budget request, Congressional Justifications, explains the rationale for the budget requests. This document includes eleven proposed legislative changes to the HECM program. These proposals are quite tame when compared to a previous slate of HECM reforms proposed under the Trump Administration which included eliminating HECM refinances altogether, abolishing the national lending limit, and separating the HECM program from FHA’s Mutual Mortgage Insurance Fund.

So today we will briefly the six most notable proposed changes announced just over a week ago.

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The first proposal would clarify that non-borrowing spouse protections only apply to the non-borrowing spouse at the time the loan was originated. If the borrower remarries protections could possibly be extended but only at the Secretary’s discretion. 

Second, HUD proposes to shorten the suspension of an FHA’s lender’s approvals to as short as one month. The present six-month minimum period would effectively put many lenders out of business. 

Third- is the elimination of the current FHA civil monetary penalties annual cap of $2 million altogether. The rationale is this would deter some from choosing to take the penalty over the cost of remedying specific violations.

Fourth- is the permanent elimination of the present statutory cap on the number of HECM loans that can be insured by FHA. A logical recommendation since the cap is routinely waived each year.

The fifth proposed change would allow FHA to provide foreclosure notes to the heirs of a deceased borrower or to designated third parties. They would help reduce foreclosure delays and prevent further deterioration of the home, both of which help preserve the homes’ value. This along with effective servicing of loans in the assignment should help reduce HECM claims in FHA’s MMI fund. 

Sixth, increased counseling for refinances of an existing HECM loan. The Congressional Justifications document reads, “Under current law, prospective borrowers must receive HUD-approved housing counseling to qualify for a HECM, except a borrower, can waive this requirement for a refinance if less than five years have passed since the closing date of their current HECM. This proposal would extend the counseling requirement to refinances of HECMs obtained within the last five years.”

Resources:

Reuters::2023 Congressional Justifications- HUD

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