Mulling over the prospect of getting a reverse mortgage? Read on.
You just might find that big changes to the program make these loans less appealing.
Assistant Secretary for Housing Carol Galante says the Federal Housing Administration is taking "aggressive action" to shore up its future after the housing meltdown left it in financial straits. Projected losses for the nation's reverse mortgage program was $2.8 billion as of last year, she said in testimony before the House Financial Services Committee Wednesday.
So officials are implementing new rules, both now and in the future. Among the biggest change to the program is that borrowers will be restricted in the amount they can take up front and in a lump sum from the equity in their home. That's because a hefty portion of those funds will be set aside to cover their annual taxes and insurance premiums in the future.
The federal action was taken after the number of reverse mortgage borrowers in default rose sharply over the years. About one in 10 loans was delinquent and possibly at risk for foreclosure as of last year, in large part because borrowers ran out of money and failed to pay their taxes and insurance.
About two-thirds of borrowers opt to take their proceeds in a lump sum rather than as a steady stream of monthly income over a period of years.
The FHA "will take immediate action to better align the program with its objective of enabling seniors to age-in-place," Galante testified. "These changes will protect FHA from losses and reduce the likelihood of borrower defaults due to nonpayment of property taxes and insurance."
Among other changes that will take effect in the near future:
- New incentives will be issued, aiming to persuade executors of the estates of borrowers who died to sell those properties rather than convey them to the FHA
- Financial assessments of borrowers will be provided to try to ensure that a reverse mortgage is suitable for their situation
Photo credit: Bill Ward via flickr.com