Fannie Mae has increased its required yield on Federal Housing Administration (FHA)reverse mortgages, which will have the net effect of increasing the interest rate on those loans by 50 to 75 basis points, according to lenders.

National Reverse Mortgage Lenders Association president Peter Bell said Fannie Mae's action was unexpected.

"It's pretty draconian," he said. "We wish Fannie had given us more notice. A lender has to eat the difference for loans in the pipeline in order to honor the interest rate that it sold its borrowers. Or they have to go back to them and redo the numbers with a higher interest rate, which means the borrower will get a smaller benefit."

A higher interest rate reduces the proceeds seniors receive from a reverse mortgage. The FHA's Home Equity Conversion Mortgage program dominates the reverse mortgage market. Fannie Mae is the largest investor in FHA-insured HECMs

. Fannie officials could not immediately be reached for comment.

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