Kiplinger: FHA Nixes Reverse Mortgage Option

Following the announcement by the Federal Housing Administration that it will combine reverse mortgage programs essentially placing a halt on the fixed rate standard reverse mortgage product, Kiplinger magazine addressed the changes and what they mean for consumers.

By “nixing” one of FHA’s most popular reverse mortgage loan, the administration has left consumers with several remaining options, Kiplinger writes

The federal government is ending fixed-rate, lump-sum loans for its most popular reverse mortgage product. Starting April 1, homeowners who apply for a reverse mortgage under the Home Equity Conversion Mortgage (HECM) Standard program will only be allowed to receive loan proceeds in the form of a line of credit or monthly payments at an adjustable interest rate.


Any fixed-rate loans under the HECM Standard program in process before that date must close by July 1. Fixed-rate, lump-sum loans will still be available under the HECM Saver program, which pays out a smaller percentage of a home’s appraised value than a Standard loan. Because the proceeds are lower, more home equity is available to cover the interest that accumulates over the life of the loan. “The loans don’t have the same risk profile,” says Peter Bell, president of the National Reverse Mortgage Lenders Association.

A report last summer by the Consumer Financial Protection Bureau noted that the fixed-rate, lump-sum loans were risky for younger seniors with decades of retirement ahead. Over time, the interest due on the loans could devour a considerable amount of home equity. In the past couple of years, these loans accounted for up to 70% of the reverse mortgage market….

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Written by Elizabeth Ecker

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  • Given that the variable still allows a lump sum advance, only slightly lower because of the likelyhood of an origination fee being charged and the possibility that the interest rate may end up higher than the fixed rate at some point, the variable has nearly as much potential for drain on future equity as the fixed. So, The answer presumably is to impound some reserves, which would be depleted in time and therefore is only a band aid or restrict the loan to a tenure payment. For those seniors who own their home free and clear, this is an option. Those of us in the field can tell you that the free and clear house is a bit rare. The lump sum is needed to pay off mortgages and with rates low and pre-seniors refinancing at a high level, the free and clear house of the future will be even more rare. So HUD and our lawmakers, you have a choice to make now. You budget for a loss in the HECM program or you turn your back on the seniors of this country.
    Might I suggest a national senior property tax exemption.(many states already have this)
    It’s pretty obscene to cut this country’s seniors off from a much needed lifeline because we overtax them and underfund them and they can’t pay.

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