HUD Issues New Guidance on Reverse Mortgages

The Federal Housing Administration (FHA) has published its consolidated and comprehensive policies for the Home Equity Conversion Mortgage (HECM) program, and the inclusion of these policies in the Single-Family Housing Policy Handbook 4000.1. For the first time ever, all HECM program requirements will be available in a single place.

Today’s publication eliminates more than 100 individual policy documents associated with the HECM program. This consolidation into a single handbook will strengthen the understanding and implementation of the program by lenders and servicers, enhancing their ability to actively engage with the more than 60,000 senior homeowners who choose to obtain a HECM to age in place in their own homes each year.

“Home Equity Conversion Mortgages are one of the strongest tools we have to ensure thousands of seniors can age in place,” said HUD Secretary Marcia L. Fudge. “This new guidance will give people one single place to easily access the information needed to obtain and maintain a HECM.”

National Reverse Mortgage Lenders Association (NRMLA) recently reported that homeowners 62 and older saw their housing wealth increase by $820 billion in the second quarter of 2023 to $12.69 trillion, according to the latest NRMLA/RiskSpan Reverse Mortgage Market Index. The NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) rebounded to 444.16, nearing its historical peak in Q2 of 2022. Senior home values reached an all-time pinnacle at $14.998 trillion, while mortgage debt surged to $2.3 trillion.

“Inflation is still a concern, and some economists are still predicting a possible mini recession in 2024, so this is welcome news to see home equity levels are rebounding somewhat,” said NRMLA President Steve Irwin. “The strategic use of home equity can play an important role in helping to offset the impact of these economically challenging times and is something that every homeowner should consider when developing or updating their retirement plan.”

With the incorporation of the new HECM sections into the Single-Family Handbook, FHA has completed its multi-year effort to deliver a consolidated, comprehensive, and authoritative source of Single Family policy for lenders, servicers, and other FHA program participants. The new sections of the Single-Family Handbook governing the HECM program include:

• Section II.B, covering FHA policy for the origination through post-closing and endorsement of HECMs; and
• Section III.B, covering FHA policy for the servicing of HECMs and loss mitigation options to assist HECM borrowers who are behind on their HECM mortgage obligations.

“HECM mortgages are an important tool to help senior homeowners age with security and dignity in their own homes,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “The completion of the HECM sections of our Single-Family Handbook reinforces FHA’s commitment to the HECM program and is part of a larger effort to retool the program for long-term success.”

The FHA also recently announced changes to the HECM for Purchase program by expanding the list of acceptable funding sources, including premium pricing, and permitting additional interested party contributions to satisfy a HECM borrower’s monetary investment requirement. The changes were published as a Federal Register Notice [Docket No. FR-6382-N-01] and invites interested stakeholders to submit public comments by November 24, 2023.

“This body of work follows extensive engagement and feedback from HECM lenders, servicers, consumer advocates, and other housing industry participants over the last two years–engagement that was instrumental in helping us move this initiative to completion,” said Deputy Assistant Secretary for Single-Family Housing Sarah Edelman. “The newly consolidated HECM single-source handbook sections have comprehensive and updated language that delivers greater clarity about our existing policies and establishes a more flexible framework for us to implement future policy changes.”