According to the National Reverse Mortgage Lenders Association there have been some 544,876 FHA-insured reverse mortgage loans since the program began in fiscal 1990. The last fiscal year was the best on record for the program with 112,154 reverse mortgages being insured by what HUD calls Home Equity Conversion Mortgages (HECMs).

The HECM program has generally done well, but those days are over. The program is in trouble and it’s possible that reverse mortgage insurance could become more difficult to get. Why? Because HUD is asking Congress for $800 million to support the program this year — money that’s not assured.
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I was trolling the Internet and came across a just-written article which discussed the benefits of FHA mortgages. This was interesting, given that the FHA last allowed freely-assumable loans two decades ago. Specifically, FHA mortgages have not been freely assumable since December 15, 1989.

In the case of a free assumption, a home buyer takes over the mortgage from the selling owner. This could be a good selling tool if the existing loan has a low interest rate or the buyer does not want to qualify for financing because with a freely-assumable mortgage the new owner would not need the lender’s permission to take over the loan. In case of default, the lender goes after the buyer who assumed the loan and — if that buyer cannot pay off the debt — the lender then goes after the original borrower.
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There’s a new effort on Capitol Hill to reform the FHA mortgage program, legislation that would get to an important question: Why do some borrowers — and some lenders — default?

The bill is HR 3146, the grandly named 21st Century FHA Housing Act of 2009. It’s actually a short piece of legislation that would beef up the FHA to handle the growing volume of loans that are underwritten by the program.
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David Stevens has now been sworn as our new FHA Commissioner. To Mr. Stevens we say congratulations and now let’s get down to work.

The FHA currently provides mortgage insurance for some 35 percent of all mortgages now being originated. That’s a substantial figure and up significantly from a few years ago when the FHA mortgage loan program faced stiff competition from so-called “nontraditional” loans, you know that mortgages which are now driving people into foreclosure and bankruptcy.

What can Mr. Stevens do to help the public?
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The Senior Lending Network has announced that “is no longer accepting new applications for mortgages, but it will continue to honor its obligations to current borrowers who already have a loan with Senior Lending Network.”

This is an interesting development for three reasons: First, reverse mortgages backed by the FHA are virtually the only game in town in this category — it’s widely estimated that 90 percent of all reverse mortgages are FHA insured.
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In news that should come as no surprise to anyone, the Mortgage Bankers Association is reporting that in June government-insured loans — meaning FHA and VA financing, but mostly FHA loans — represented 36 percent of all loan applications — the largest market penetration since 1990.

In comparison, the lowest recorded market share was 5.8 percent in August 2005.

“A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s Associate Vice President of Economic Forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.”
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On Capitol Hill last week, the US Senate Special Committee on Aging looed into the matter of  Reverse Mortgages: Leaving Seniors and Taxpayers on the Hook? The real subject, of course, is FHA-insured reverse mortgages since the FHA program has a virtual monopoly in the field.

Peter Bell, president of that National Reverse Mortgage Lenders Association (NRMLA),  testified that “a reverse mortgage must occupy the primary lien position on a property. All other liens must be satisfied with reverse mortgage proceeds. If some of the proceeds available from the reverse mortgage are diverted to a tax and insurance escrow, in some cases, there would not be enough money left to satisfy the liens. In such cases, the homeowner would not be able to obtain the reverse mortgage – and probably be forced to give up the home.
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Will borrowers be denied FHA loans because of changing lender standards? Not FHA standards, but instead the standards used by lenders who are then insured by the FHA when they originate mortgages.

Nathan Reynolds writes and says that “when my office began offering low “fixed” rate FHA mortgages we successfully provided relief to 100’s of homeowners. I know this for a fact because by tracking the loans we have originated, there is less than a 3% default rate for a period of almost 3 years now.
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