New Changes are Coming for the Reverse Mortgage Program
The U.S. Department of Housing and Urban Development formally affirmed on Tuesday, August 29, that it will be raising up-front fees, as well as tightening lending limits for the Reverse Mortgage Program starting in September. Reverse Mortgages, designed to help seniors 62 and older access the equity from their properties to supplement retirement savings, has become an encumbrance for the FHA Insurance program, the Mutual Mortgage Insurance Fund, with losses since 2009. Reforms executed to tighten reverse mortgages, such as creating sustainability of HECM loans with a financial assessment, has eliminated borrower default on required program obligations, timely payments for property taxes, and flood and hazard insurance payments, by 50%. HUD stated on Tuesday, Reverse mortgage losses are making it increasingly challenging for FHA to maintain insurance reserves that Congress requires.
HUD Secretary Ben Carson asserted, “we can no longer tolerate putting American taxpayers and future generations of seniors at risk. Quite simply the HECM program is losing money and can no longer remain viable in its present form”.
To avoid bailouts from the U.S. Treasury for financial losses seen in the program, HUD proposes the following refinements:
Effective October 2nd, borrowers will pay a standard 2% up-front mortgage insurance fee. The Wall Street Journal reported, those changes will affect most new borrowers. During the life of the loan, the MIP will annually raise 0.5%, regardless of the initial draw amount. The “fee relief”is lower than the current annual amount of 1.25% and will slow the rate at which the loan balance grows, HUD says.
New limits, lowering the amount of cash borrowers can draw from their home’s equity, will also go into effect October 2nd. The average amount of cash will drop from 64% of the homes value to 58% based on current rates and the borrower’s age, the WSJ said.
Changes are set to go in effect for all loans with FHA case numbers assigned on or after October 2nd, the start of the new fiscal year. This will not affect anyone who already has a reverse mortgage.