FHA fixed rate Reverse Mortgage

We all know that the end of

A popular type of reverse mortgage may become less so, due to rising defaults that prompted the Federal Housing Administration to make changes at the beginning of this month.

The standard fixed-rate HECM, or Home Equity Conversion Mortgage, offered qualified reverse mortgage borrowers a lump sum of their home equity with a fixed rate. Now, the FHA says that beginning April 1, those loans are only available with a variable rate and a smaller lump sum. Borrowers seeking a fixed rate can still get the Saver Fixed-Rate HECM, which also comes with a smaller lump sum.

Change arises from rise in defaults

The FHA reports that 10 percent of the HECM loans it insures, in the amount of $2.8 billion, were in default in 2012, up from 2 percent a decade ago. By giving borrowers less cash upfront, the hope is that homeowners will not spend it too quickly.

Reverse mortgages have been an option for homeowners age 62 or older who want to turn their home equity into a fixed income in retirement. The lender pays a monthly payment for as long as the homeowner lives in the home or for a specified period. They generally come with higher interest rates as well as higher fees and closing costs than traditional mortgages, making them an expensive option in many cases.

The change to the standard HECM is one of several proposed changes announced by the FHA in an effort to bolster its Mutual Mortgage Insurance Fund, which has been depleted during the housing crisis. The next wave, expected in August, could include higher mortgage insurance premiums and additional underwriting standards.


Fewer FHA Loans Going Bad - Encouraging news

2011-03-24 10:55:36 by EricAZ

The serious delinquency rate of mortgages insured by the Federal Housing Administration went down from 8.9 percent a year ago to 8.29 percent the first quarter of this year.
Some mortgage experts have worried about more FHA home loans becoming delinquent after FHA loan originations exploded in recent years, in a way replacing the subprime loans offered during the run up in housing prices. However, the latest delinquency figures indicate the FHA is through its worst period and problem is under control.
As subprime loans disappeared and lenders tightened their mortgage requirements following the financial crisis, FHA loans, which are insured by the agency but made through private FHA-approved lenders, have become the only option for many borrowers with imperfect credit,...

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