WSJ: HUD Scraps Most Popular Reverse Mortgage, Not All is Lost

The Federal Housing Administration is making changes to its reverse mortgage program that will essentially “scrap” the agency’s most popular reverse mortgage product, writes the Wall Street Journal this week. However, homeowners who need this type of loan and those who are helping to advise them can still find ways to use a reverse mortgage to meet their needs even following this “reverse mortgage redo,” WSJ writes. 

It’s important for the borrower to weigh what he or she needs when considering the products that remain available, the article states. 

WSJ writes: 

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…By April 1, the agency will discontinue the fixed-rate “standard” reverse mortgage, a loan that 70% of borrowers elect in part because it generates the largest lump-sum payout. (Typically, these loans generate from 62% to 77% of a home’s appraised value, depending on the homeowner’s age, and often have lower fees.)

Regulators are eliminating this option because it accounts for a disproportionate share of the defaults on reverse mortgages, which occur when homeowners are unable to pay their property taxes or homeowners insurance.

“For many homeowners, taking all eligible cash upfront results in insufficient cash flow in later years for property upkeep, taxes and insurance,” according to a November report to Congress from the Department of Housing and Urban Development.

When deciding which type of reverse mortgage is right for you, it’s important to weigh the amount you need, the fees you will pay and the type of payout that best suits your financial goals….

Read the full article

Written by Elizabeth Ecker

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  • The WSJ article gets it right and gets it wrong. The article generally got it right saying:

    “With actuaries projecting $2.8 billion in losses on reverse mortgages over the next 30 years, the Federal Housing Administration—which insures virtually all reverse mortgages—recently announced sweeping changes to the program.”

    But then it gets it wrong by blaming the discontinuance of the fixed rate Standard on the T & I default issue. If there were zero defaults for taxes and insurance, the $2.8 billion amount would change marginally.

    It sounds better if the fixed rate Standard is being terminated due to the harm it has done to a significant percentage of those who have taken the product than due to the poor financial decisions of top FHA officials.

    As expected, blame bad FHA management on the seniors, not on FHA and ultimately Administration irresponsible financial decisions.

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