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….
Read the full story at Kiplinger.com.
Written by Elizabeth Ecker