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More Money More Problems for FHA & HUD?

Those who take out home loans, guaranteed by the federal Housing Administration, may soon find themselves paying big fees as the House has recently passed a bill allowing the FHA to hike monthly premiums as they see fit. For instance, a borrower maintaining a $170,000 mortgage might possibly pay an additional $42 a month.

Meanwhile, with the potential of having to deal with yet another principal limit reduction for the FHA’s reverse mortgage program, the US Department of Housing and Urban Development (HUD) is presently working on a quick solution to eliminate the necessity for the $250 million appropriation requested in the budget for the 2011 fiscal year.

HUD is looking to better manage its finances which have soured due to the foreclosure crisis. The agency is the primary source of mortgages for first-time homebuyers.

HUD’s Director of Portfolio Analysis, Colin Cushman, recently detailed a new, two reverse mortgage product approach which he’s hoping will see light by the fall. This new solution would present borrowers with two reverse mortgage product options: first, is a needs-based, HECM product, including a 2% upfront mortgage insurance premium (MIP), 1.25% annual MIP and is, ultimately, very similar to the principal limit factors available today.

FHA is also developing “HECM Lite”, a new product which will compete with a home equity line of credit. Developed for borrowers looking for less money, HECM Lite has no upfront MIP, a 1.25% annual MIP and lower principal limit factors. A “pay as you go product,” Colin Cushman said it would “help lower the risk to the FHA insurance fund” and offer borrowers additional options not presently available.

Cushman said HUD is fully aware another cut to principal limits for in 2011 would “greatly impact the number of seniors who have access to the program.” The Director of Portfolio Analysis made it clear HUD does not want to see that happen.