HUD extends some relief for reverse mortgage payments

The Federal Housing Administration has further extended some of the leeway it gave distressed consumers with reverse mortgages and servicers during the pandemic.

The extension from the end of this year to Dec. 31, 2023 affects two waivers that remain in place for Home Equity Conversion Mortgages the FHA insures. HECMs constitute the bulk of reverse mortgages, which are loans designed to help seniors withdraw equity from their homes while still living in them.

One waiver removes a limit to the amount of unpaid property charges borrowers could be in arrears on while still being eligible for a repayment plan. Normally, that cap is $5,000.

The other waiver has, since March 1, 2020, allowed mortgage companies who pay off a borrower’s delinquent property taxes and insurance to immediately assign the loan to the Department of Housing and Urban Development, avoiding a standard three-year waiting period.

“These waivers provide mortgagees with continued flexibility to help senior homeowners,” the FHA said in a bulletin.

The extension of the waivers may be a test of whether they, or some form of them, could be used on a more permanent basis. Various iterations of the waivers have existed since April 2020, when they were first introduced, and their deadlines have been pushed forward at least five times, including the most recent extension.

Because reverse mortgages have been particularly prone to losses due to underwriting shortcomings in the past, officials will likely be watching closely to see how HECMs perform with these waivers in place.

The waivers likely have been allowed to remain in part because of the recent financial strength of the fund that the FHA, an arm of the Department of Housing and Urban Development, uses to insure home loans.

The fund’s capital ratio, which compares the economic net worth available to cover losses to the dollar volume of active loans, has been positive for the HECM portfolio the past two years thanks to home price appreciation and underwriting reforms.

However, officials have warned that cooling home prices and economic shifts could change the outlook for the reverse mortgage portfolio.

“The FHA does not expect the HECM portfolio to sustain the same level of financial performance in the following years,” said Mia Pittman, deputy assistant secretary for risk management, during a media briefing that accompanied the fund’s recent annual report.