The Department of Housing and Urban Development issued a proposal Wednesday to codify recent changes to its reverse mortgage program and to provide additional protections for seniors, including a cap on annual interest rate increases.

"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," said Edward Golding, principal deputy assistant secretary for housing at HUD.

The Federal Housing Administration has revamped its Home Equity Conversion Mortgage program over the past two years to tighten up the reverse mortgage program and require 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.

Now the FHA wants to add additional consumer protections, according to Golding.

"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 homeowners," he said.

The proposal is being issued for a 60-day comment period. The proposed changes would:

  • Make certain that required HECM counseling occurs before a mortgage contract is signed.
  • Require lenders to fully disclose all loan features.
  • Cap interest rate increases on HECM adjustable rate mortgages so lifetime increases or decreases cannot exceed 5 percentage points.
  • Reduce the cap on annual interest rate increases on HECM adjustable-rate mortgages from 2% to 1%.
  • Require lenders 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.
  • Define "property charges" to include utilities when it is borrower's responsibility to pay the bill.
  • Include utility payments in the property charge assessment.
  • Create a "cash for keys" program to encourage borrowers to complete a deed-in-lieu transaction and gracefully exit the property versus enduring a lengthy foreclosure process.

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