HUD Announces Plans for a New Reverse Mortgage Option

On August 27, FHA announced its intention to make modifications to its Home Equity Conversion Mortgage (HECM) product, a reverse mortgage loan insured by the federal government, to make it more attractive and cost effective for older home owners.

Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells it, or passes away.

In a telephone briefing last Friday, HUD Deputy Assistant Secretary Vicki Bott shared the Department’s plans to implement a new variant of the HECM, referred to as the "HECM Saver," that will provide seniors with a reverse mortgage option with an upfront Mortgage Insurance Premium (MIP) of .01% of a property's value, compared to 2% under the HECM Standard option.

HUD can achieve this cost savings in upfront fees because the amount of the total funds available to borrowers under the HECM Saver option will be reduced. Borrowers will receive approximately 10-18 percent less under the HECM Saver option than they would under the HECM Standard option.

The HECM Saver option, as well as some additional changes to the HECM Standard option, should go into effect this October.