US News & World Report, March 4th, 2011
Reverse mortgages are set for their second major change in less than a
year. Growing problems with loan defaults—estimated to have increased
in recent years to about 5 percent of all outstanding reverse
mortgages—have prompted regulators at the U.S. Department of Housing
and Urban Development to begin drafting new oversight rules. They
would require loan applicants to demonstrate their ability to pay
and home insurance premiums on their properties. The rules would apply
to the government’s home equity conversion mortgage (HECM) program,
under which nearly all reverse mortgages are made.
Reverse mortgages have been hailed by supporters as a way for
cash-strapped seniors (the youngest borrower in a household must be at
least 62 years old) to tap a portion of the equity in their homes and
free themselves from future mortgage payments. Under the terms of a
reverse mortgage, the loans are, in effect, paid off to lenders using
the remaining equity in the home that has not been paid to homeowners.
Homeowners can stay in their homes as long as they’re able, even after
these repayments and loan fees have exhausted all of the remaining
equity in the home.
However, the fees for reverse mortgages have been criticized by
consumer groups as too high. And there were past abuses in which
aggressive marketers convinced seniors to take out reverse mortgages
and put the loan proceeds into expensive investments that were not in
their best interest.
Last fall, the Federal Housing Administration—the arm of HUD that
oversees the HECM program—introduced a new HECM Saver loan that
features very low upfront fees. It also pays out a smaller percentage
of a homeowner’s equity than a standard HECM loan. This provides a
larger equity cushion against loan losses and possible claims on the
FHA insurance that provides safeguards to HECM borrowers and lenders.
Now, another large change in the program is under discussion, driven
by the growing number of loans that are in default. While reverse
mortgage borrowers no longer have to make mortgage payments to stay in
their homes, they do have to , insurance, and other upkeep expenses.
Read more of this article.
About Reverse Mortgages: Reverse mortgages do change as the regulations that support their existence are adjusted by the government in response to pressures and uncovered abuses. We strongly recommend keeping up to date on the program by getting all the information you can.