Later this month, the Federal Housing Administration will release “sharp curbs” on its reverse mortgage loan product writes a U.S. News and World Report article this week. Once those changes are in place, consumers will need to take a close look at loan terms, under which they will have access to fewer loan proceeds overall.
The article refers to changes being discussed by FHA in response to the agency’s annual independent audit, which in 2012 found its insurance fund for reverse mortgages to have an economic value of negative $2.8 billion.
U.S. News and World writes:
Reverse mortgages, long criticized for high fees and other anti-consumer features, turn out to actually be the opposite—such a good deal that the government is nearly $3 billion in the hole on outstanding mortgages. As a result, the Federal Housing Administration (FHA) will later this month unveil sharp curbs on its loan product, called the Home Equity Conversion Mortgage (HECM).
When the new rules are issued, consumers will need to take a close look at the terms of these loans. While the specifics of the changes have yet to be announced, they will lead to consumers being able to access a smaller share of their home’s equity when they take out a reverse mortgage. In addition, lenders will probably be required to set aside a portion of the borrower’s home equity to pay future property taxes and home-insurance premiums. And there may also be limits that restrict lower-wealth borrowers from taking out a HECM.
The FHA (and thus taxpayers) has been losing the most money on the most popular HECM loan: a fixed-rate loan known as the Standard HECM loan. This type of loan will be halted under the new rules. Most borrowers thus will be required to consider a newer reverse mortgage called the HECM Saver…
Written by Elizabeth Ecker