The Federal Housing Administration, or FHA, is an agency of the United States federal government that was created under the National Housing Act of 1934. Because so many banks failed during the Great Depression, it was difficult for people to get mortgages to buy homes, so FHA was created to insure loans that met certain lending guidelines. FHA’s role in the mortgage market made it possible for banks to lend confidently to home buyers in a time of severe economic hardship and uncertainty and helped support and stabilize a turbulent housing market.
The HECM reverse mortgage is created
The HECM program was created and signed into law by President Ronald Reagan as part of the Housing and Community Development Act of 1987 and placed under the regulatory authority of FHA and the Department of Housing and Urban Development (HUD).
The federal government created the HECM program to give seniors additional financial options in retirement other than just Social Security or other entitlement programs. Because reverse mortgages have historically been considered risky by banks, FHA’s backing of the HECM played a huge role in making it the widely available product it is today. As long as reverse mortgage lenders conform to the FHA HECM guidelines, they can be confident that the loan will be insured and they (and the borrower) will be protected against loss if the borrower ever ends up owing more than the home is worth. The FHA insurance is what makes the HECM reverse mortgage a non-recourse loan.
FHA implements stricter lending guidelines
HUD and FHA constantly seek to make the HECM program more stable and beneficial for seniors. The latest major regulatory changes include new protections for non-borrowing spouses and new financial assessment guidelines that help ensure borrowers meet a minimum level of financial stability to qualify.
FHA has also reduced PL factors in recent years to help protect the mutual mortgage insurance fund against losses.
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