The Federal Housing Administration (FHA) officially announced a new modified version of its Home Equity Conversion Mortgage (HECM) product last week. The HECM Saver is an a second reverse mortgage option for the purpose of lowering upfront loan closing costs, for homeowners who want to borrow a smaller amount than what would be available with a HECM Standard loan. Borrowers will receive approximately 10 to 18 percent less under the HECM Saver option, than they would receive under HECM Standard but have the same general terms and conditions as the original product.
“Despite the popularity of our HECM loan product, we have noted concerns that some senior citizens find that our fees are too high for them,” said FHA Commissioner David Stevens. “In response, we created HECM Saver which will provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium (MIP) that is required under the standard HECM option.”
The new product will have an upfront premium of only .01 percent of the property’s value versus the the upfront premium for the HECM Standard at 2 percent. The MIP for both HECM Saver and HECM Standard will be charged monthly at an annual rate of 1.25 percent of the outstanding loan balance. Lower upfront fees will be available because the principal limit or amount of money available to a borrower will be lower with the HECM Saver program.