The Department of Housing and Urban Development on Tuesday will formally announce plans to increase premiums and tighten lending limits on reverse mortgages, citing concerns about the strength of the program and taxpayer losses.
Mortgage insurance premiums on Home Equity Conversion Mortgages will rise to 2% of the home value at the time of origination, then 0.5% annually during the life of the loan, The Wall Street Journal reported Tuesday morning. In addition, the average amount of cash that seniors can access will drop from about 64% of the home’s value to 58% based on current rates, the WSJ said.
“Given the losses we’re seeing in the program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” HUD secretary Ben Carson told the WSJ via a spokesperson.
The HECM program’s value within the Mutual Mortgage Insurance Fund was pegged at negative $7.72 billion in fiscal 2016, and the WSJ noted that the HECM program has generated in $12 billion in payouts from the fund since 2009. The value of the HECM program fluctuates over time, however: In 2015, the reverse mortgage portion of the fund generated an estimated $6.78 billion in value; in 2014, the deficit was negative $1.17 billion.
Unnamed HUD officials told the WSJ that without this change, the Federal Housing Administration would need an appropriation from Congress in the next few years to sustain the HECM fund. The officials also said that the drag created by reverse mortgages has prevented them from lowering insurance premiums on forward mortgages for homeowners.
“You have this cross-subsidy from younger, less affluent people who are trying to achieve homeownership,” HUD senior advisor Adolfo Marzol told the WSJ.
The move took the industry by surprise, with the WSJ reporting that leaders were not briefed on the changes beforehand.