New Consumer Protections on Reverse Mortgages Detailed by the FHA

Filed under: Reverse Mortgage

According to a recent article last week by Brian Collins, the Department of Housing and Urban Development has issued a proposal which will codify recent changes to its reverse mortgage program and will provide additional protections for seniors, including a cop on annual interest rate increases.

fhaPrincipal deputy assistant secretary for housing at HUD, Edward Golding said, “We’ve gone to great lengths to protect seniors and ensure they can remain in their homes where they’ve raised families and where they hope to live out their days.”

Collins explained that the Home Equity Conversion Mortgage program has been “revamped” by the Federal Housing Administration over the past two years in order to tighten up the reverse mortgage program. It requires financial assessments for the first time to ensure borrowers have the financial wherewithal to remain in their home and pay for property taxes and homeowners’ insurance.

According to Golding, the FHA now wants to add additional “consumer protections.”

Golding added, “As we grow older as a nation, we have a responsibility to ensure reverse mortgages remain a safe, secure, and sustainable financial option for future generations of senior home owners.”

Collins listed the proposed changes in his article, which include:

  • HECM counseling is required to occur before a mortgage contract is signed
  • Lenders are required to fully disclose all loan features
  • There will be a cap on interest rate increases on HECM adjustable rate mortgages so lifetime increases or decreases cannot exceed five percentage points
  • The cap on annual interest rate increases on HECM adjustable rate mortgages will be reduced from 2% to 1%
  • Lenders will be required to pay mortgage insurance premiums until the HECM is paid in full, foreclosed on, or a deed-in-lieu is executed rather than until when the mortgage contract is terminated
  • “Property Changes” will be defined to include utilities when it is the borrower’s responsibility to pay the bill
  • Utility payments in the property charge assessment
  • A “cash for keys” program will be created to encourage borrowers to complete a deed-in-lieu transaction and gracefully exit the property versus enduring a lengthy foreclosure process

If you have any questions about reverse mortgages or any other aspect of the mortgage industry, feel free to give me a call.


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