April 26, 2024 — Press Release

Advocates Applaud HECM-For-Purchase Policy Change that Will Protect Older Borrowers 

WASHINGTON – The Department of Housing and Urban Development’s (HUD) announced today that premium pricing – charging a higher interest rate in exchange for an up-front credit – is not permitted in the reverse mortgage program that allows for home purchase,  HUD’s Home Equity Conversion Mortgage (HECM) for Purchase program. HUD will modify its proposed rule allowing interested party contributions for certain reverse mortgage loans and bar contributions from lenders and loan originators, while still permitting contributions from sellers and other third parties. 

“Reverse mortgage borrowers take on a complex financial product to reduce housing expenses and maintain stable shelter,” said Sarah Mancini, co-director of advocacy at the National Consumer Law Center. “HUD’s policy announcement today will remove the risk that these older homeowners will be up-charged on their interest rate in ways that would cost them more and eat up their home equity faster.” 

Reverse mortgage loans, available to borrowers over age 62, are meant to make it easier for older homeowners to age in place by allowing them to borrow against the equity in the home without any required monthly loan payment. The Federal Housing Administration’s (FHA) HECM for Purchase program allows an older consumer to use a reverse mortgage to buy a home, provided they can bring the required downpayment to the closing table. Most borrowers do that by selling an existing home to downsize or move into a home with greater accessibility or supportive services.

HUD has made a number of important changes in the past six months to shore up the HECM program. This includes providing increased flexibility in the assignment of loans to HUD, to address the liquidity problems in the reverse mortgage market, as well as improving loss mitigation policies to prevent unnecessary foreclosure. There are roughly 480,000 reverse mortgages currently outstanding in the United States and this number is expected to grow as baby boomers age. 

“HUD’s actions to strengthen the HECM program are extremely important steps toward increasing stable housing for older adults,” said Odette Williamson, senior attorney with NCLC. “We look forward to continuing to share information with the agency as it bolsters this crucial loan program.” 

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