FHA reverse mortgage bailout

The Federal Housing Administration is about to tap the U.S. Treasury for financial help for the first time in its 79-year history – and so-called reverse-mortgage loans to older people appear to be a big reason why.

Shutterstock.com Funding retirement, bankrupting Uncle Sam?

The FHA insures mortgage lenders against losses, and it plays a particularly big role in backing up mortgages that involve relatively small down payments (loans involving as little as 3.5% down can qualify for FHA insurance). When borrowers on the loans default, the FHA makes payments to lenders. The agency announced back in April that it was likely to need an infusion of cash this year to shore up its insurance-reserve fund; it announced today that the amount it would be drawing was $1.7 billion.

So why are you reading about this in Encore? Because the FHA says that its cash shortfall is largely due to problems with its role as a backstop for reverse mortgages – loans that let people over age 62 tap their home equity for cash. Unlike traditional home-equity loans, reverse-mortgage loans don’t have to be repaid until the homeowner sells the house, moves out or dies. But default rates on those loans have been unexpectedly high in recent years, and the government has been tightening restrictions on the loans as a result. As Nick Timaraos of The Wall Street Journal noted this week, the FHA’s reverse-mortgage portfolio is expected to run a deficit of $5.2 billion this year, wiping out the $4.3 billion surplus the agency expects from its standard mortgage portfolio.

The FHA said today that none of the money it was taking from the Treasury would actually be disbursed, but that it was required to hold the cash to maintain an adequate cushion in its insurance reserves. The transfer of funds doesn’t require approval from Congress.


Higher rates = Higher Home prices?

2011-08-23 15:15:52 by irvinerealtor

The Federal Housing Administration (FHA) will reduce single-family loan limits in the highest-cost metropolitan areas from $729,750 to $625,500 starting Oct. 1. The reduction, announced Friday afternoon, will affect 669 of the 3,234 jurisdictions in which the FHA insures loans.
The current floor loan limit in areas where housing costs are relatively low will remain unchanged, at $271,050 for one-unit properties. The mortgage loan limit and maximum claim amount for FHA-insured reverse mortgages will also remain unchanged, at $625,500.
The current maximum loan limits were to be retired in January 2009, but legislation delayed implementation of the loan-limit...

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