A Good Sign: House Passes Foreclosure Act - Provisions Aid Reverse Mortgages

PASSAGE


H.R. 3221, The Foreclosure Prevention Act of 2008 passed the house yesterday. It is a huge bill covering many housing issues such as mortgage rescue, foreclosures, funding and new governance for FHMA and FHLMC, providing cities with funds to buy up foreclosed properties (so they can maintain them and help keep up neighborhood values) and updating and revising the Reverse Mortgage program for senior citizens.

There was another Bill begun around April, 2007, called the FHA Modernization Act, which addressed only the Reverse Mortgage issues. It was passed in December by both Houses of Congress. But in the late winter of 2008 it was moved and included in the current Housing Rescue and Foreclosure Prevention Act of 2008. This has caused numerous delays in Reverse Mortgage revision, due to the many issues, some highly controversial, in H.R. 3221

H.R. 3221 was passed by a vote of 272-152. If you are interested in who voted for or against the bill, especially in your state or district, go to (http://www.govtrack.us/congress/vote.xpd?vote=h2008-519 ) to see the roll call vote. (It’s about the first thing I did).

IMPLEMENTATION

The next step in this long process will be a vote by the Senate on Friday or Monday, July 25th or 28th. Then the Bill will go to the President for final approval, and at last, to HUD/FHA for implementation. It could take HUD/FHA 30-60 days to make the Reverse Mortgage changes.

However, and this is a bit of speculation on my part, there may be lenders who will take applications based on the current reverse mortgage formulas, and update them during the processing period.

They would do this in order to speed up help to the many senior citizens who have not been able to qualify for the loan, or get enough of their equity to help them - either with bills, medical care or even foreclosure.

ISSUES RESOLVED

A summary of the new provisions that were approved for the Reverse Mortgage are as follows:

1. A single national loan limit of $417,000 that can increase up to as much as $625,
500 in high cost areas. (High-cost areas are the large metro areas such as Washington, DC-No. Virginia-Maryland, or Los Angeles, New York, Miami and more.)

2. Home Purchase product authority. (This is a tremendous boon to those senior who wish to downsize, but need to reduce or eliminate any monthly mortgage payment. The reverse mortgage may also be used to purchase a 2nd home - but, each person may have only one reverse mortgage at a time.

3. Co-op product provisions. (Until now, the only Co-op Reverse Mortgages allowed were in the New York City area where such properties are common. However, many other areas, such as our Washington DC Metro area have clusters of Co-op housing.)

4. Origination fees of 2% on the initial $200,000 loan amount and 1% on the balance thereafter with a cap of $6,000 (This will help lower the generally high costs of the Reverse Mortgage, but I am disappointed that the FHA initial premium was left at 2%, plus an ongoing annual 1/2% fee calculated on a monthly basis.)

(To date there has been little risk for FHA on Reverse Mortgages, and these insurance premium funds are available to be tapped to assist FHA costs for forward refinance or purchase mortgages. The normal forward mortgage FHA fee is now calculated based on risk. For instance if a borrower is getting a loan of 90% LTV or less and has a credit score of 560 to 850, the initial premium is 1.25% , plus 1/2% annually, calculated on a monthly basis. There are higher premiums for lower credit scores and/or higher loan-to-values ((LTV)). This risk-based pricing has been halted for a year, and the old FHA Premiums are temporarily in effect and range from 1.25% -1.5% plus 1/2% annually. )

5. Prohibitions on requiring the purchase of annuities and other financial products. ( Currently, there is a disclosure for borrowers to sign addressing annuities, insurance, but it is not as restrictive as the new prohibitons will be. This is an excellent further protection for senior borrowers, and will put the brakes on brokers who try to direct the use of a senior’s reverse mortgage funds, and earning further commissions, whether it is good for the borrower or not.)

6. Restrictions around cross selling financial products. (For banks and savings and loans this may stop the cross selling of products, but it is safer for a senior borrower to always have a third party to turn to if they want other financial products such as investments, insurance, annuities. Yet it will still leave the senior borrower the choice of using the same bank for both the reverse mortgage and other products.

7. Requirements on counseling protocols, funding and practices that promote independence and quality in counseling. (Since the inception of the FHA Reverse Mortgage counseling has been mandatory; but this provision will improve the education and requirements for counselors, thereby further increasing a senior’s knowledge and security.)

QUESTIONS

If you have any questions regarding this Bill or just want more detailed information that applies to your own financial situation, or decision-making, please don’t hesitate to call me, personally.

Gloria (703/244-8151)