New rules could revive reverse mortgages, writes reverse mortgage advocate Alicia Munnell in the headline of a MarketWatch column this week. Noting she is a “fan” of reverse mortgages, Munnell, who directs the Boston College Center for Retirement Research, says she is in favor of the recent reverse mortgage program changes as a necessary measure to protect and bring back the Home Equity Conversion Mortgage program.
Detailing the new changes, Munnell says the measures were designed to fix past program problems, including pressure on the Federal Housing Administration’s insurance fund for HECM loans. But in addition to alleviating some of the past pressures, the loan also offers less equity available to be borrowed by new applicants.
Munnell gives an example in her column:
“The new regulations also reduce the maximum amount of home equity that borrowers can access. It will still depend largely on the age of the borrower, the value of the home, and the interest rate. But under the new regulations, assuming an interest rate of 5%, a 72-year-old will be able to withdraw up to 57.5%, minus fees. This compares to 67.7% of the home’s value using the [former] standard and 55.4% using the [former] saver.”
Forthcoming changes including a financial assessment of borrowers will present an additional overlay, Munnell writes, stressing that the changes are taking the program in the right direction.
“All these changes should be viewed as positive,” she writes. “The limit on first-year withdrawals will reduce the likelihood that borrowers will spend their money and be left without a buffer to allow for future needs. The financial assessment will ensure that the people taking out a reverse mortgage will not be forced into bankruptcy by failing to pay taxes and insurance. Consolidating the standard and the saver will make the program easier to understand. A better customer experience combined with slightly higher fees and slightly lower loan amounts will also take pressure off the insurance fund.
We need this program to work well, because people are going to need the money.”
Written by Elizabeth Ecker