WASHINGTON, June 12 The U.S. House of
Representatives passed a bill on Wednesday that would give new
authority to the Federal Housing Administration to tighten terms
for reverse mortgages, where it has faced significant losses.
The FHA, which backs $1.1 trillion in U.S. home mortgages,
is looking to shore up its finances in the face of a projected
shortfall of $16.3 billion due, in part, to reverse mortgages
that have gone into default.
The legislation would need to be approved by the Senate to
take effect. If enacted, it would help shore up the FHA's most
popular reverse-mortgage option that allows people 62 or older
to take cash out of their homes. Under the program, seniors can
convert their equity into cash by getting a large, upfront lump
sum, monthly payments or a line of credit.
"Hundreds of thousands of seniors currently utilize federal
reverse home mortgages. We need to act to stabilize the
program," said Representative Denny Heck, a Democrat from
Washington, who sponsored the bill with Representative Michael
Fitzpatrick, a Pennsylvania Republican.
Borrowers still pay taxes and insurance on reverse
mortgages, while payouts from home sales go to the lender when
the borrower dies or moves.
The measure passed by the House allows the FHA to put in
place new loan terms without following a rule-making process
that normally takes months.
The FHA would use the new authority to require financial
assessments of borrowers' budgets to make sure they are suitable
for the loan; to set up escrow accounts to ensure payment of
taxes and insurance to avoid default for non-payment; and to
limit the amount borrowers can take out as a lump sum up front.
The Senate has a companion bill, introduced by Senator
Robert Mendedez, a New Jersey Democrat, but it has not yet
considered the measure.
The FHA doesn't make loans, but instead insures lenders
against losses. The agency has played a crucial role helping the
housing market by supporting mortgages of borrowers who put
little money down, and it back almost one-third of loans used to
Given its shaky finances, the FHA could be required to turn
to the Treasury for a bailout. Whether or not it will require
aid will be determined when the mortgage insurer reassesses its
books when the fiscal year ends on Sept. 30.