Effective Oct. 1, the proceeds on Federal Housing Administration (FHA)-insured reverse mortgages will be reduced by 10% — a swift policy change that has spurred lenders to beat the deadline so their clients can borrow more.
If lenders can get a FHA case number by Sept. 30, they can save their clients $10,000 to $20,000. The average FHA-insured home equity conversion mortgage amount is $159,000.
To get a case number for a HECM, the lender has to provide FHA with a signed certificate that the borrower has completed the necessary counseling requirements. Counseling agencies are "swamped," according to Peter Bell, president of the National Reverse Mortgage Lenders Association.
"The rush is to get anyone thinking of getting a loan into counseling," he said. The federal mortgage insurance agency made the coverage change to reduce its risk exposure and operate the Home Equity Conversion Mortgage (HECM) program without a credit subsidy.
According to budget estimates, the HECM program faces an estimated $800 million loss due to falling housing prices and congressional appropriators have not come up with the funds to cover this loss.
"We are taking prudent steps at this time to protect the viability of the HECM program and the market it serves," FHA commissioner David Stevens said.