Yesterday, the U.S. House of Representatives passed a comprehensive housing package comprised of two separate bills. The first bill, H.R. 3221, has as its centerpiece, an authorization of 0 billion in FHA refinancing to help homeowners facing trouble meeting their mortgage payments. New FHA-insured loans would become available, under this special provision, for loans written down to the current property value.

Several other pending bills, including FHA Modernization, were amalgamated into H.R. 3221. It includes GSE reform, establishing a new regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and requiring Fannie and Freddie to contribute to a new affordable housing fund. Tax provisions include temporary increases in low-income housing tax credits for rental housing production and tax-exempt bond authority -- plus a new tax credit for first-time homebuyers. Various HECM amendments are included in the FHA Modernization portion of H.R. 3221.

The second bill, H.R. 5818, would provide billion in loans and grants to states and localities to purchase and rehabilitate vacant foreclosed properties to stabilize neighborhoods.

HECM amendments in the FHA Modernization section of H.R. 3221 include:

a.) Elimination of the authorization cap that limits FHA to insuring no more than 250,000 HECMs. For the past year and a half, we have been operating under a “suspension” of the cap. This bill would permanently remove the cap.

b.) Establishing a single national maximum loan limit for HECM, at 132% of the GSE limit. Today, that would be $ 550,400 ($ 417,000 x 132%)

c.) A new approach to determining limitations on HECM origination fees. The maximum allowable origination fee would be established at 2% of the first $ 200,000 of maximum claim amount, plus 1% of the balance above that. So for example, on a $ 300,000 value home, the origination fee cap would be 2% of the first $ 200,000 ($ 4,000) 1% of the next $ 100,000 ($ 1,000), for a total of $ 5,000. There is an overall cap on the HECM origination fee at $ 6,000. The cap will be adjusted periodically for inflation. As anyone following the reverse mortgage business over the years knows, there has always been widespread perception, among advocates, policymakers and seniors that reverse mortgage costs are high. One of the considerations that kept us from benefiting from the higher temporary FHA loan limits established in the Economic Stimulus Act earlier this year was concern about origination fees growing even higher with larger loans. The new fee formula and cap address those concerns and will enable us to benefit from all future increases in loan limits. If the origination fee limitations prove to be too severe and have an adverse impact on the availability of HECMs, the HUD Secretary is given the authority to change the limitations.

d.) Authority to insure HECMs for the purchase of a 1- to 4- unit property in which the mortgagor will occupy one of the units.

e.) “Clean-up” of language enacted in the 2000 Housing Act enabling HECMs to be made on co-op units.

f.) Prohibition on required purchase of an annuity.

g.) A new requirement for the HUD Secretary to issue regulations to protect borrowers from the marketing of financial and insurance products “not in the interest of such homeowners.”

h.) A requirement for the Secretary to conduct a study within twelve months of enactment that analyzes and determines the effects of reducing HECM mortgage insurance premiums, taking into consideration costs to borrowers and financial soundness of the program.

While passage of this bill by the House of Representatives is a major step forward, it is by no means assured that all of these items will be enacted in the end.The Senate passed a very different version of this legislation several weeks back. While the HECM provisions are more or less the same in both the House and the Senate versions, other areas of the two bills differ vastly, requiring either that the Senate vote to accept the House provisions or that a conference be held to negotiate compromises on the items on which the two bills differ.

It is the hope of the House leadership to get the Senate to act soon and complete this process in time to get a bill to the President by the July 4th recess. The President, in the meantime, has threatened to veto the whole bill because he is opposed to the foreclosure relief provisions.The Senate version contains the earlier provision limiting HECM origination fees to 1.5% of maximum claim amount. It also has an amendment by Sen. Claire McCaskill placing restrictions on the sale of other financial products with HECMs that is more restrictive than the House language.

As far as the limitation on HECM origination fees is concerned, I would like to provide some background and perspective. As I mentioned earlier in this memo, for years there has been criticism over what are perceived to be high origination fees associated with HECMs. During mark-up of the original version of FHA Modernization in the House Financial Services Committee last summer, AARP was successful in persuading a bi-partisan group of legislators to offer and adopt an amendment that would have limited the origination fee to 2% of the initial principal limit, rather than the maximum claim amount.

For a number of reasons, we felt that this was a completely unworkable idea. For example, older borrowers would have paid higher origination fees than younger borrowers. Also, when interest rates rise, initial principal limits come down, so therefore origination fees would come down simultaneously. We expressed out concerns to House Financial Services Committee Chairman Barney Frank who asked us to get together with AARP to work out an alternative method of reducing the maximum origination fee. After an intense, involved negotiation, AARP agreed to back away from tying the origination fee to the initial principal limit and keeping it pegged to the maximum claim amount, as long as we agreed to reduce it from 2% to 1.5%. That earlier compromise had been pending in both the House and Senate versions of the bill.

More recently, when it became apparent that we had an opportunity to gain a single national loan limit even higher than the current GSE limit of 7,000, we approached AARP, key Congressional staff and legislators. They seemed willing to accommodate us provided that it would not result in origination fees growing to a level that they felt was indefensible. We agreed to consider an overall cap on fees, if they would work with us to raise the maximum origination fee for loans on lower value homes. We did an analysis of HECM activity and found that 58% of it was on homes with values under $ 250,000. We pushed to preserve the current 2% origination fee for homes up to that amount. AARP consented to preserving the 2% origination fee on the first $ 200,000 of value, but insisted on a reduction on higher value homes. In the end, we felt that the compromise – 2% of the first $ 200,000 of maximum claim amount, plus 1% on the balance of maximum claim amount, up to an overall fee cap of $ 6,000 – provided a significant amount of more revenue to the industry than would across the board implementation of the 1.5% fee limitation. Additionally, we felt that getting the much larger single national loan limit ($ 550,440), coupled with several other provisions in the bill, would generate more HECM activity overall, compensating for the cut in origination fees.

article source www.reversemortgage.org