Due to recent product changes implemented by the Federal Housing Administration, it’s becoming tougher for seniors to tap into home equity via reverse mortgages, writes a CNBC article published this week.
Yet the halt of FHA’s most popular fixed-rate standard reverse mortgage still leaves viable options for some as a financial lifeline, the article states, for retirees who are equipped to proceed with caution.
The article points to high fees among reverse mortgage downsides, as well as the “last resort” mentality associated with the loans, even despite the product offerings changing to address some of the shortfalls of reverse mortgages for cash-strapped older Americans.
“By taking so much cash up front, homeowners have less money in later years to keep up with property taxes and other housing expenses they have to pay even with a reverse mortgage,” Delores Conway, associate dean and professor of real estate at the Simon School in Rochester, New York, told CNBC. “That, and falling property values, have increased defaults.”
While some financial planners and estate planners recommend reverse mortgages as a means to assist retirees, one estate planning attorney told CNBC she does not recommend them.
“Reverse mortgages are touted as a financial planning tool for seniors, however, I do not recommend them for my clients,” Tara Wilson, general counsel at Wilson LF, a law firm specializing in estate planning, told CNBC. “Not only are the transaction fees excessive, but they are usually a stopgap that leave seniors in a mush worse financial position when they are exhausted of their funds from the loan.”
Representing a lender perspective, One Reverse Mortgage President Gregg Smith told CNBC of the increasing appeal reverse mortgages will have in the near future in light of the products still available following the elimination of the fixed standard.
“These loans are no more complicated than any other type of loan,” Smith told CNBC. “It’s a mainstream program and should be part of someone’s financial planning. They are a great cash flow tool even with the new restrictions. More people will take them out in the future.”
Written by Elizabeth Ecker