Upcoming Changes for Reverse Mortgage Information

Updated on 5/29/2013

 

 

Reverse Mortgage Information: Upcoming Changes

The FHA’s reverse mortgage program is due to change over the next several weeks.  Since the FHA fiscal year ended at the end of September, the final numbers should be released in the next few days.  Here’s the reverse mortgage information you have been searching for: what are the possible upcoming changes and why are they needed?

Reverse Mortgages

Reverse mortgages are used as a means of financing for those aged 62 and over.  The main principle behind reverse mortgages is that homeowners will utilize real estate equity to obtain a loan that can be used for anything.  What makes reverse mortgages so attractive is that the homeowner will receive cash without any monthly principal and interest costs.

Another way in which homeowners use reverse mortgage money is to pay their current mortgage payments.  If an individual has a pension or is receiving Social Security benefits, the monthly cost change could be huge.  What’s the catch?  While borrowers don’t have to repay the loan until they move, sell the house or pass away, they do have to pay for property taxes and insurance.  This just means that a monthly housing cost of $1,500 before a reverse mortgage loan could be reduced to a monthly housing cost of $300 after the loan.  In this current economic environment, many older homeowners haven’t been making these mandatory payments and have been losing their homes to foreclosure despite the fact that they no longer have monthly mortgage payments.

The majority of lenders are still in support of this program because they have one hundred percent coverage against any losses. 

Big Changes?

There are currently ideas in the works about how the reverse mortgage program could be changed and improved.  Here are some examples:

·         HUD could require an income test to assure that borrowers have a large enough cash flow to pay off their insurance and property taxes

·         Mandate escrow accounts for borrowers to pay monthly into so that their property taxes/insurance can be paid off

·         HUD could increase insurance premiums in order to offset the losses incurred from reverse mortgages

Some individuals in the mortgage and real estate industry will be very unhappy with the HUD changes, but HUD has the right to change the program however they see fit.  Since mortgage rates are so low, the reverse mortgage program remains extremely attractive but is nevertheless unsustainable to HUD. 

Lender411 has an extensive database of reverse mortgage loan information.  For more reverse mortgage information, please head over to our reverse mortgage information page.