	Introduction

The Home Equity Conversion Mortgage (HECM) program, administered by the Department of Housing and Urban Development's (HUD's) Federal Housing Administration (FHA), is a reverse mortgage insurance program whereby older homeowners—those age 62 and older—borrow against the equity in their homes and FHA insures lenders against potential losses associated with the loans. The HECM program came about as a demonstration in 1988. The HECM program became permanent in 1998 and has insured nearly 1 million reverse mortgages since its creation. As the result of a court decision, HUD has attempted to ensure that non-borrowing spouses are protected from foreclosure. Reverse mortgages are based on the same concept of using home equity for home maintenance and other needs, but reverse mortgages differ from forward mortgages primarily in the way that borrowers pay back the amount owed. However, particularly since the 2008 economic downturn, nearly all reverse mortgages are insured through the HECM program. Borrowers pay up-front and annual insurance premiums to HUD, and if the amount of the loan exceeds the sale price at the end of its life, HUD reimburses the lender for the difference up to a maximum claim amount. While most borrowers already occupy their homes, HECMs can also be used to purchase property. This requirement was made part of final regulations, issued January 19, 2017, with an effective date of September 19, 2017. The initial interest rate on the loan is 5%. Borrowers can opt for loan payouts in a number of different ways: as a lump sum, a line of credit, in monthly payments for a term of months, in monthly payments for the borrower's lifetime, or a combination of credit line and monthly payments. Further, spouses are to participate in counseling even if they will not be on the mortgage. Property Taxes and Homeowners Insurance: Borrowers must pay their property taxes and homeowner's insurance. HECMs become due and payable when a borrower dies or conveys the property. (HECMs became part of FHA's Mutual Mortgage Insurance (MMI) Fund in 2009, which made the loan portfolio subject to actuarial review. ) Since 2009, the estimated economic value of the HECM loan portfolio has fluctuated between positive and negative. Despite changes to the program, most recently, the FY2016 HECM actuarial review reported an economic value of negative $7.7 billion. Reasons for Financial Instability

Over the years, a variety of factors have contributed to estimates of negative economic value for the HECM portfolio. For example, at the time of the FY2012 Actuarial Review, the year of the first negative estimate exceeding $1 billion (the estimate was negative $2.8 billion), contributing factors included declines in home values after the housing market decline that began in 2008; longer loan life than expected; an increase in the number of homes conveyed to FHA (versus retained and sold by the borrower or lender), meaning that FHA had to maintain and market the homes; and an increasing number of borrowers who withdrew the maximum lump sum payment at loan closing rather than receiving smaller amounts. However, due to the court decision invalidating HUD's interpretation of the statute, HUD has changed the way in which non-borrowing surviving spouses are treated to ensure that, in most cases, they may remain in the home. Loans Entered Into On or After August 4, 2014: Originally provided via mortgagee letter, HUD released final HECM regulations on January 19, 2017, and effective September 19, 2017, that include provisions to protect non-borrowing spouses and to ensure that, going forward, the ages of non-borrowing spouses are taken into account when determining loan levels. Non-borrowing spouses may remain in the home as long as they satisfy certain qualifying attributes and maintain additional criteria during the deferral period. The qualifying attributes are (1) borrower and non-borrower were spouses at the time the loan was entered into and remained spouses through the duration of the borrower's lifetime; (2) the relationship as a non-borrowing spouse was disclosed at the time of mortgage origination and was included in the mortgage documents; and (3) the non-borrowing spouse occupied and continues to occupy the house as a principal residence. The law also 
directed the HUD Secretary to consult with consumer groups, industry representatives, and representatives from counseling organizations to "identify alternative approaches to providing consumer information" to potential HECM borrowers; authorized (from FY2000-FY2003) up to $1 million of the amount appropriated for HUD's Housing Counseling program to be used for HECM counseling and consumer education; expanded disclosure requirements, requiring that borrowers know all charges involved in the mortgage, including those for estate planning and financial advice, and which charges are required for obtaining the mortgage and which are not; and gave the HUD Secretary the authority to put in place restrictions to ensure that a borrower "does not fund any unnecessary or excessive costs for obtaining the mortgage, including any costs of estate planning, financial advice, or other related services." The Reverse Mortgage Stabilization Act of 2013 ( P.L.
Reverse mortgages allow older homeowners to borrow against the equity in their homes and repay the loans at a later time, after they sell the home or pass away. Reverse mortgages differ from traditional forward mortgages both in the way in which borrowers receive the loan proceeds and the way in which the loans are repaid. Like traditional forward mortgages and home equity lines of credit, borrowers may receive a lump sum payment from the loan or have an available line of credit. However, additional options include monthly payments over a period of time or monthly payments for the life of the borrower, as long as the borrower remains in the home.
The Department of Housing and Urban Development (HUD) provides Federal Housing Administration (FHA) insurance for reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. Reverse mortgages need not be insured by HUD; nevertheless, nearly all reverse mortgages are now insured through the HECM program. If homes with HECM loans are sold for less than the amount owed, the program will reimburse lenders up to a maximum claim amount (typically the appraised value of the home at the time the HECM was entered into). HUD has insured nearly 1 million HECMs since the program's inception as a demonstration in 1988. It was made permanent in 1998.
Homeowners can qualify for HECMs if they are age 62 or older and occupy their home as a principal residence. Potential borrowers are also required to go through a counseling process and satisfy certain financial criteria to ensure that they will be able to maintain payments toward property taxes and homeowner's insurance while they live in the home. The loan amount for which borrowers qualify depends on their age, the interest rate, and the value of the home. Borrowers pay both up-front and annual insurance premiums to participate in the HECM program.
Recent years have brought uncertainty in the financial stability of the HECM loan portfolio, part of the FHA Mutual Mortgage Insurance (MMI) Fund. After the FY2012 HECM actuarial report estimated that the portfolio had a negative economic value, HUD took steps to improve its financial stability via authority granted through the Reverse Mortgage Stabilization Act of 2013 (P.L. 113-29). These steps included requiring HECM applicants to go through a financial assessment (previously, borrower financial criteria were not taken into account) and reducing the amount that borrowers can draw during the first year of the loan. Since then, the economic value of HECMs has alternated between positive and negative economic value in each year. Most recently, the FY2016 actuarial report on HECMs estimated that the portfolio had a value of negative $7.7 billion. Among the reasons for the finding of negative value in FY2016 are new data showing lower-than-expected home sales prices and increased costs to FHA of maintaining homes prior to sale.
Another issue HUD has been compelled to address is how non-borrowing spouses are treated when HECM borrowers pass away. A court found that HUD interpreted the statute incorrectly when it required loans to be due and payable on a borrower's death even when a non-borrowing spouse was present in the home. As a result of the court decision, HUD issued mortgagee letters allowing non-borrowing spouses to avoid foreclosure and defer paying off the loan balance. They may instead remain in the home on the death of a borrower as long as the non-borrowing spouse meets certain conditions. In addition, the age of non-borrowing spouses is now part of the actuarial calculation used to determine loan amounts. Some of these changes were made part of a final regulation released on January 19, 2017, with an effective date of September 19, 2017.