On the heels of changes announced by the Federal Housing Administration to its reverse mortgage program, AARP’s blog this week outlined what the changes—namely the suspension of FHA’s fixed rate standard option—mean for prospective borrowers.
Despite the changes being geared toward safer lending practices, the changes, which will restrict the amount borrowers can take upfront, AARP writes, could make the loans less desirable to borrowers.
AARP’s blog writes:
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. The nation’s reverse mortgage program alone lost $2.8 billion 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 last year. About one in 10 loans was delinquent and at risk for foreclosure, 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.
Written by Elizabeth Ecker