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HUD/OH

RIN: 2502-AI79

Publication ID: Fall 2011

Title: Federal Housing Administration (FHA): Strengthening the Home Equity Conversion Mortgages (HECM) Program to Promote Sustained Homeownership (FR-5353)
Abstract: HUD is taking another step to reform and strengthen the mortgage insurance functions and responsibilities of the Federal Housing Administration (FHA), and concomitantly protect the individuals and families that use FHA-mortgage products. This proposed rule would revise the regulations governing FHA's Home Equity Conversion Mortgage (HECM) program, which is FHA's reverse mortgage program that enables senior homeowners who have equity in their homes to withdraw a portion of the accumulated equity. Most significantly, this rule proposes to require FHA-approved mortgagees that originate HECM mortgages (HECM mortgagees) to perform a financial capacity and credit history assessment of prospective HECM mortgagors prior to loan approval and closing. Mortgagees will be required to evaluate whether the HECM mortgagor's cash flow and credit history support the mortgagor's ability to comply with the obligations of the HECM and are sufficient to meet recurring living expenses. A mortgagee may deny the HECM loan application if the prospective mortgagor fails either the financial capacity or credit history assessment. As an alternative to declining the HECM loan application, the mortgagee may require the establishment of a principal limit set-aside for payment of property charges. The proposed rule would also cap the amount of insurance benefits paid in connection with a claim involving amounts advanced by the mortgagee on behalf of a HECM mortgagor who fails to pay such property charges when the HECM proceeds have been exhausted and establish a new property inspection requirement to insure that home secured with a HECM mortgage are adequately maintained and meet applicable property standards. The proposed rule would also make several non-substantive changes to reflect the statutory flexibility provided to HUD in establishing the mortgage insurance premiums for FHA-insured mortgages, conform the regulations to existing HUD interpretations and industry practices regarding HECM program requirements, and reduce administrative paperwork
Agency: Department of Housing and Urban Development(HUD)	Priority: Other Significant
RIN Status: Previously published in the Unified Agenda	Agenda Stage of Rulemaking: Proposed Rule Stage
Major: No	Unfunded Mandates: No
CFR Citation: 24 CFR 206.19 24 CFR 206.32 24 CFR 206.25 24 CFR 206.27 24 CFR 206.29 24 CFR 206.38.24 24 CFR 206.51 24 CFR 206.53 24 CFR 206.105 24 CFR 206.107 24 CFR 206.124 24 CFR 206.129 24 CFR 206.140, 206.142 24 CFR 206.203, 19 24 CFR 206.58 24 CFR 206.47
Legal Authority: 12 USC 1715b, 1715z to 1720 42 USC 3535(d)

Legal Deadline: None

Statement of Need: HUD does not currently require HECM mortgagees to verify the mortgagor's income, assets, and debt obligations. Neither do the HECM regulations require a mortgagee to assess the mortgagor's credit history and capacity to pay future living expenses and meet all other future financial obligations related to the property under the HECM loan. Such a financial capacity and credit history assessment is a prudent underwriting practice currently required by mortgagees for FHA forward mortgage products. Based on data available to HUD, HECM delinquencies are growing and occurring soon after origination. This data also indicates that these delinquencies are largely the result of the failure of mortgagors to pay recurring property charges. The proposed rule would address these concerns by requiring that mortgagees determine whether the potential mortgagor has the capacity to pay recurring property charges and meet recurring living expenses.

Summary of the Legal Basis: The HECM program is authorized under section 255 of the National Housing Act (12 U.S.C. 1715z to 1720). This rulemaking is undertaken pursuant to the general rulemaking authority granted to the Secretary under section 7(d) of the Department of HUD Act (42 U.S.C. 35335(d)), which authorizes the Secretary to make "such rules and regulations as may be necessary to carry out his functions, powers, and duties." In addition, the National Housing Act at 12 U.S.C. 1701c(a) uses the exact wording in conferring general rulemaking authority to the Secretary for implementing the insured mortgage programs authorized under the National Housing Act.

Alternatives: Rulemaking is required to ensure that the financial capacity and credit history requirements are generally applicable and enforceable by HUD. Where appropriate, HUD will provide mortgagees with flexibility in determining the method for conducting the required assessments and for considering additional factors in determining and verifying the financial capacity and credit history of prospective HECM mortgagors.

Anticipated Costs and Benefits: The benefits of this rule would be the reduced transaction costs and externalities associated with foreclosure. The costs of the rule would be the additional administrative and financial costs associated with carrying out the required assessments.

Risks: This rule poses no risk to public health, safety, or the environment.

Timetable:

Action	Date	FR Cite
NPRM	12/00/2011

Regulatory Flexibility Analysis Required: No	Government Levels Affected: None
Small Entities Affected: No	Federalism: No
Included in the Regulatory Plan: Yes
RIN Data Printed in the FR: No
Agency Contact: Patricia J. McClung Acting Office of Single Family Programs, Office of Housing Department of Housing and Urban Development Office of Housing 451 7th Street SW., Washington, DC 20410 Phone:202 708-2121