{ "id": "R44128", "type": "CRS Report", "typeId": "REPORTS", "number": "R44128", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 586647, "date": "2017-03-31", "retrieved": "2020-01-02T14:41:07.906143", "title": "HUD\u2019s Reverse Mortgage Insurance Program: Home Equity Conversion Mortgages", "summary": "Reverse mortgages allow older homeowners to borrow against the equity in their homes and repay the loans at a later time, after they sell the home or pass away. Reverse mortgages differ from traditional forward mortgages both in the way in which borrowers receive the loan proceeds and the way in which the loans are repaid. Like traditional forward mortgages and home equity lines of credit, borrowers may receive a lump sum payment from the loan or have an available line of credit. However, additional options include monthly payments over a period of time or monthly payments for the life of the borrower, as long as the borrower remains in the home.\nThe Department of Housing and Urban Development (HUD) provides Federal Housing Administration (FHA) insurance for reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. Reverse mortgages need not be insured by HUD; nevertheless, nearly all reverse mortgages are now insured through the HECM program. If homes with HECM loans are sold for less than the amount owed, the program will reimburse lenders up to a maximum claim amount (typically the appraised value of the home at the time the HECM was entered into). HUD has insured nearly 1 million HECMs since the program\u2019s inception as a demonstration in 1988. It was made permanent in 1998.\nHomeowners can qualify for HECMs if they are age 62 or older and occupy their home as a principal residence. Potential borrowers are also required to go through a counseling process and satisfy certain financial criteria to ensure that they will be able to maintain payments toward property taxes and homeowner\u2019s insurance while they live in the home. The loan amount for which borrowers qualify depends on their age, the interest rate, and the value of the home. Borrowers pay both up-front and annual insurance premiums to participate in the HECM program.\nRecent years have brought uncertainty in the financial stability of the HECM loan portfolio, part of the FHA Mutual Mortgage Insurance (MMI) Fund. After the FY2012 HECM actuarial report estimated that the portfolio had a negative economic value, HUD took steps to improve its financial stability via authority granted through the Reverse Mortgage Stabilization Act of 2013 (P.L. 113-29). These steps included requiring HECM applicants to go through a financial assessment (previously, borrower financial criteria were not taken into account) and reducing the amount that borrowers can draw during the first year of the loan. Since then, the economic value of HECMs has alternated between positive and negative economic value in each year. Most recently, the FY2016 actuarial report on HECMs estimated that the portfolio had a value of negative $7.7 billion. Among the reasons for the finding of negative value in FY2016 are new data showing lower-than-expected home sales prices and increased costs to FHA of maintaining homes prior to sale. \nAnother issue HUD has been compelled to address is how non-borrowing spouses are treated when HECM borrowers pass away. A court found that HUD interpreted the statute incorrectly when it required loans to be due and payable on a borrower\u2019s death even when a non-borrowing spouse was present in the home. As a result of the court decision, HUD issued mortgagee letters allowing non-borrowing spouses to avoid foreclosure and defer paying off the loan balance. They may instead remain in the home on the death of a borrower as long as the non-borrowing spouse meets certain conditions. In addition, the age of non-borrowing spouses is now part of the actuarial calculation used to determine loan amounts. Some of these changes were made part of a final regulation released on January 19, 2017, with an effective date of September 19, 2017.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R44128", "sha1": "cdcc3f41ea34cfef0a127940021890f7e12edaf1", "filename": "files/20170331_R44128_cdcc3f41ea34cfef0a127940021890f7e12edaf1.html", "images": { "/products/Getimages/?directory=R/html/R44128_files&id=/1.png": "files/20170331_R44128_images_4bedda9c945bec2e5faf2a239622214626bc0bbf.png", "/products/Getimages/?directory=R/html/R44128_files&id=/0.png": "files/20170331_R44128_images_912c95f41fd7c8f9b5471fb34571ae038c890cca.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R44128", "sha1": "e0626aae97423d8a6c6b89c7b3f7a73122173544", "filename": "files/20170331_R44128_e0626aae97423d8a6c6b89c7b3f7a73122173544.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4918, "name": "Homeownership & Housing Finance" } ] }, { "source": "EveryCRSReport.com", "id": 443448, "date": "2015-07-31", "retrieved": "2016-04-06T18:41:34.538254", "title": "HUD\u2019s Reverse Mortgage Insurance Program: Home Equity Conversion Mortgages", "summary": "Reverse mortgages allow older homeowners to borrow against the equity in their homes and repay the loans at a later time, after they sell the home or pass away. Reverse mortgages differ from traditional forward mortgages both in the way in which borrowers receive the loan proceeds and the way in which the loans are repaid. Like traditional forward mortgages and home equity lines of credit, borrowers may receive a lump sum payment from the loan or have an available line of credit. However, additional options include monthly payments over a period of time or monthly payments for the life of the borrower, as long as the borrower remains in the home.\nThe Department of Housing and Urban Development (HUD) provides Federal Housing Administration (FHA) insurance for reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. Reverse mortgages need not be insured by HUD; nevertheless, nearly all reverse mortgages are now insured through the HECM program. If homes with HECM loans are sold for less than the amount owed, the program will reimburse lenders up to a maximum claim amount (typically the appraised value of the home at the time the HECM was entered into). HUD has insured approximately 900,000 HECMs since the program\u2019s inception as a demonstration in 1988. It was made permanent in 1998.\nHomeowners can qualify for HECMs if they are age 62 or older and occupy their home as a principal residence. Potential borrowers are also required to go through a counseling process, and satisfy certain financial criteria to ensure that they will be able to maintain payments toward property taxes and homeowner\u2019s insurance while they live in the home. The loan amount for which borrowers qualify depends on their age, the interest rate, and the value of the home. Borrowers pay both up-front and annual insurance premiums to participate in the HECM program.\nRecent years have brought uncertainty in the financial stability of the HECM loan portfolio, part of the FHA Mutual Mortgage Insurance (MMI) Fund. One reason for this is an increasing number of borrowers withdrawing the maximum loan amount at loan closing. A high loan amount increases the risk that a loan balance may eventually eclipse the home\u2019s value. This has occurred in particular when borrowers fail to make payments toward property taxes and insurance, and the unpaid amounts are added to the loan balance. HUD, with authorization from Congress (via the Reverse Mortgage Stabilization Act of 2013 (P.L. 113-29)), has taken steps to protect the FHA MMI fund. These include requiring HECM applicants to go through a financial assessment (previously, borrower financial criteria were not taken into account) and reducing the amount that borrowers can draw during the first year of the loan.\nAnother issue HUD has been compelled to address is how non-borrowing spouses are treated when HECM borrowers pass away. A court found that HUD interpreted the statute incorrectly when it required loans to be due and payable on a borrower\u2019s death when a non-borrowing spouse was present in the home. As a result of the court decision, HUD issued mortgagee letters allowing non-borrowing spouses to avoid foreclosure or paying off the loan balance. They may instead remain in the home on the death of a borrower as long as the non-borrowing spouse meets certain conditions. In addition, the age of non-borrowing spouses is now part of the actuarial calculation used to determine loan amounts.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44128", "sha1": "2035e4642aa23f626cd2b9f2f42a6c793b620b3d", "filename": "files/20150731_R44128_2035e4642aa23f626cd2b9f2f42a6c793b620b3d.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44128", "sha1": "8acd2196dda38648150990ac8b19dccad69ba7fa", "filename": "files/20150731_R44128_8acd2196dda38648150990ac8b19dccad69ba7fa.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 4306, "name": "Homeownership Assistance" } ] } ], "topics": [ "Domestic Social Policy" ] }