"First and foremost, we have to restructure the HECM mortgage insurance premiums. HECMs are not expensive, if you look at it over the life of the loan. But the premiums are poorly structured because they're very front loaded. If you charge nothing, the Federal Housing Administration (FHA) is not going to collect much in the way of fees. But if you charge too much, nobody's going to buy it. So where is that sweet spot? Well, it's not 2%. It's less than that."
"They've created a system where if interest rates are higher, you get less money, but you still pay the same upfront mortgage insurance premium. It's terribly inappropriate to pay 2% and then get very little money. My proposal has it dropping from 2% to 1%, but we have to make it clear we do not want this to increase the risk to the Mutual Mortgage Insurance Fund."
"The second issue is the principal limit factors. They're too low for many of our clients to qualify. We know that those were structured at a time when there was a perceived risk. Property values have increased dramatically over the last 10 years and yet we've never really adjusted the principal limit factors. It was my understanding HUD didn't have an appetite to do that."
HECM mortgage insurance premiums should be restructured because current premiums are front-loaded and reduce borrower access when interest rates rise. HECMs are not expensive over a loan's life, but a 2% upfront mortgage insurance premium can leave borrowers with little available proceeds at higher rates. Reducing the upfront premium to 1% while shifting appropriate fees to the back end can preserve Mutual Mortgage Insurance Fund stability. Principal limit factors should be increased to reflect significant home value appreciation over the past decade. Collateral risk assessment policy that forces second appraisals on 20–25% of HECM loans is inefficient and should be revised.
Read at www.housingwire.com
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