Reverse Mortgage Changes Point to Secure Lending Trends: Motley Fool

New regulatory restrictions on the federally-insured reverse mortgage program have strengthened lending security by adding safeguards for consumers that will lower the number of eligible borrowers, but protect the ones that do qualify, writes the Motley Fool

“With the new rules, fewer seniors will be able to qualify for a reverse mortgage. Is this a good thing?” the article asks. “The answer is complex. In the majority of cases, some key factors make a lot of difference in how reverse mortgages work for borrowers.”

Among those factors: whether or not a homeowner has children. If  not, it can make sense for them to draw down their home’s equity, says Motley Fool, but having heirs can be complicated, especially if they’re expecting an inheritance.


The terms of the reverse mortgage—along with the context of the loan—determine whether or not it’s a good move for the borrower, according to Motley Fool, and the new rules serve to create “common-sense” standards to ensure fewer reverse mortgage borrowers default or run into financial emergencies down the road.

“The bottom line is that, as with other kinds of similar lending, reverse mortgage fundamentals need to be fully explained to seniors or others who qualify,” says the article. “The lending environment needs to be supportive of the borrower, and the potential outcomes need to be communicated thoroughly.” 

Read the full article

Written by Alyssa Gerace

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  • If the summary was the totality of the article, what a great article. Unfortunately the article is not nearly so clear.

    For example the article states: “But if there are any beneficiaries, families may be aghast at how even modest changes to a loan structure take a big chunk of equity out of a home.” Well, the widow who I advised to get a HECM in 2004 has seen just exactly the opposite result. Her average effective interest rate is lower than the interest rate assumed in her original amortization schedule.

    But the equity in the home of the widow is much lower than the amortization showed. The reason why is that since 2004, the value of her home has not yet fully recovered from the mortgage disaster of the last decade, let alone grown by 4% annually.

    Why do I emphasize that a HECM is a nonrecourse mortgage rather than some ridiculous notion about equity release? It is because the value of the home has nothing to do with the amount of draws or anything else other than as a math calculation once the HECM is initially funded. What I have been able to show the daughter of the widow is that the HECM has done better than expected as shown on the original amortization schedule despite what the value of the home has done. That has always consoled the family that the widow made the right decision in getting the HECM. Yet I prepared the family for the fact that interest rates could have gone up and may yet go up but the HECM is not confused with how well home appreciation has done.

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