Big Changes for Reverse Mortgage Program

By Stevie Duffin Updated on 9/25/2013

 

 

This past Wednesday, in a testimony before the House Financial Services Committee, Assistant Secretary for Housing Carol Galante stated that the FHA would be taking aggressive action to secure its future after last year’s housing meltdown last year.  Last year, the reverse mortgage program lost $2.8 billion.

Because of this, officials are putting new rules into place that will go into effect now and in the future.  One of the biggest changes to the reverse mortgage program is that borrowers will be restricted in the amount of money that they can take up front and in a lump sum from their home’s equity.  The reasoning behind this is because most of these funds will be used for their annual insurance premiums and taxes in the future years.

Last year, the total number of reverse mortgage borrowers in default dramatically increased.  Around 10% of loans were delinquent and at risk for foreclosure.  The reason for this is because borrowers no longer had any money and couldn’t pay their insurance and taxes.  Around 2/3 of reverse mortgage borrowers wish to collect their proceeds as a lump sum as opposed to a consistent monthly income stream.  The FHA will be taking immediate action in order to protect itself from loss and to reduce borrower default. 

Several other changes that will also be happening to the reverse mortgage program:

• Limited borrower closing costs
• Financial assessment/evaluation of borrowers to ensure minimization of risk
• Increased incentives to have estates sold as opposed to being conveyed to the FHA