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The FHA Modernization Bill, What It Means To You

Jan 21, 2008
Are you currently thinking about a reverse mortgage? Have you been told that with your property value, you really might be better off going with a jumbo or proprietary reverse mortgage, but you really wanted to get the government insured Home Equity Conversion Mortgage. Have you looked at the proprietary products and thought that you liked the higher balances but really disliked the higher interest rates associated with most of those programs? Help may be very near for you.

In 2006 both the House of Representatives and the Senate approved Bills known as FHA Modernization Bills designed to help the Federal Housing Administration modernize their approach to how they deal with the lending needs in this country. The Bills don't deal solely with Reverse Mortgages, but we will touch on the parts that do. The House was first to pass their Bill last summer and then the Senate passed their version of the Bill, Senate Bill 2338 on December 14, 2007. The Bills have some different provisions and must go back to a joint committee now to iron out those differences before a law can be placed before the President for signature, but there is very little difference in the House and Senate version with regard to Reverse Mortgages. Many legislative insiders believe the Senate provisions will be the ones adopted so those are the new provisions I will discuss.

There is now a cap on the number of HECM loans FHA can insure and we have bumped up against that cap in the past which has caused senior homeowners to be delayed in getting their reverse mortgages. The Modernization Bill Permanently eliminates that cap. Homeowners qualify for HECM loans based on age, property value and the limit set for the county in which they live. These limits currently can vary drastically county by county throughout the United States. The Modernization Bill would do away with county by county limits and establish one national limit, $417,000, which is higher than any current limit for any county in the nation.

HECM's are limited to refinances only at this time, and the modernization bill would open these loans up for purchases. Seniors wishing to move closer to family or downsize could use a reverse mortgage to purchase their home. And finally, the Bill would lower the maximum fee that could be charged to a senior from the current 2% down to 1.5% of the maximum claim amount ($417,000).

There will still be a market for proprietary products for properties with values exceeding somewhere around $700,000, but you need to have your information run on a reverse mortgage calculator to see what makes the most sense for you. And keep in mind that the Modernization Bill has not been signed into law yet and is subject to changes as the House of Representatives and Senate Conferees meet, negotiate and reconcile their differences between their versions of the Bills. They must agree on their proposed changes, issue what is called a Conference Report which is then voted on by the full House and Senate.

Only then can a final Bill be place before the President for signature. Based on the overwhelming support for the Bill in both branches of Congress and the recent remarks of the President, it's not really the Bill will go through but when it will go through and exactly what it will look like so if you're one of those who wanted a reverse mortgage but didn't get one because you didn't like the proprietary product, your program may be here in the very near future.
About the Author
Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762

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