Meg Burns
The FHA Director of the Office of Single Family Program Development, Meg Burns, started a commotion at the MBA Conference in San Diego last week when she mentioned that the FHA was looking into making some changes to the reverse mortgage product. Some of the proposed changes include introducing new products such as the HECM Mini. While the HECM Mini has yet to be officially released, and there are certainly some kinks and details to be worked out, the gist of the product seems to be as follows:
Right now, the HECM is a one-size-fits-all product. Borrowers are not able to choose how much of the home’s equity they would like to use or how much income they would like to receive from the home. The HECM Mini would enable a borrower to borrow against smaller amounts of their home equity to obtain the funds they need at a given period of time. The fees for the loan would be lower, so that it might well serve those with 1-3 years remaining in their home.
While no specific numbers were floated for the FHA’s HECM Mini, I have a feeling it may resemble MetLife’s proposed HECM II in fee structure. This would mean that there would be no upfront mortgage insurance premium, with the mortgage insurance premium instead being paid/assessed annually. The product would also feature lower LTVs than a traditional HECM. MetLife’s HECM II assumes 3% annual appreciation.
Now obviously the HECM II is not the same as the HECM Mini, but again, since no finite details for the HECM Mini have been announced, the HECM II provides a structure for thinking about what the HECM Mini might look like.
The HECM Mini could vastly benefit seniors, enabling them to choose a smaller principal limit if they would like it. Right now a reverse mortgage is a longer term product, but the idea of seniors being able to borrow against their home as needed with lower fees is one that will likely be agreeable to many seniors. Let’s hope the HECM Mini comes out soon.
Also, if anyone knows anything more about the proposal, please feel free to comment below.