In researching reverse mortgages online, you may have read that reverse mortgage changes are expected in 2013.
As a government-insured loan, the Federal Housing Administration’s Home Equity Conversion Mortgage is managed by the Department of Housing and Urban Development, which reports to Congress.
Due largely to the widespread decline in home values as a result of the housing burst, many of FHA’s lending programs have come under scrutiny, prompting the need to make changes.
So far, reverse mortgage loans have remained the same as in previous years. However, FHA has indicated that there could be more change on the way.
It’s important to realize that this change is not yet certain. Anyone who currently has an FHA-insured reverse mortgage will not see any change to his or her loan. Those who close a reverse mortgage today will also not be subject to any additional terms other than those specified at the time of closing.
Reasons for change
HUD officials have pointed to today’s reverse mortgage borrowers as meeting a different profile from the typical borrower of the past. The reverse mortgage product was designed to help older Americans age in place by using the home equity they have built up over time to help meet the costs of daily living.
Historically, reverse mortgages have been offered either as fixed rate loan or as an adjustable rate loan. At one time, only adjustable rates were offered. More recently, however, the fixed rate loan has been introduced, with studies showing that the majority of borrowers elect the fixed rate product and opt to receive the loan proceeds in a lump sum, rather than as monthly installments or as a line of credit—other options that are available to all borrowers.
HUD officials have said program change may target this product breakdown to try to rebalance the percentage of fixed rate borrowers. They have also stated they are seeking ways to help borrowers meet ongoing payments associated with the loan including property tax and homeowners insurance.
This may mean:
-Putting the fixed rate product offering on hold in favor of the adjustable rate product.
-Requiring borrowers to set aside some amount of loan proceeds for their tax and insurance payments.
-Introducing a financial assessment of borrowers that would determine whether a borrower can meet those ongoing tax and insurance payments.
Today’s reverse mortgage
Today, borrowers must qualify for a reverse mortgage based on their age—at least 62 years—and the amount of home equity they have built over time. There are currently no income or credit qualifications.
Borrowers can choose a fixed rate or adjustable rate option, and can choose to receive payments as a lump sum, a line of credit, term or tenure payments, or some combination of those choices. There are currently no restrictions on how loan proceeds can be used.
FHA says the potential changes are in the interest of making the product safer for borrowers who need this kind of financial tool to help them remain in their homes in retirement. Until the changes take place, however, the current product is available.
If you are interested in learning more about this type of loan and how it may work in your individual situation, we are here to help. Contact us for more information.
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