New Federal Housing Administration (FHA) regulations have changed the amount of proceeds seniors can receive from FHA-insured reverse mortgages and are pushing for lenders to market different, National Mortgage News reports, adding that regulation changes are making the product more attractive to borrowers.
“[Seniors] are generally limited to just 60% of the funds during the first 12 months,” National Mortgage News reports. “The rationing of proceeds is to make sure borrowers have some equity left when they leave the closing table, reducing the likelihood of default.”
Other regulation changes include requiring “reverse mortgage lenders to conduct financial assessments to ensure borrowers have the necessary residual income to pay taxes and insurance and maintain the property,” National Mortgage News reports.
The new regulations are changing the way reverse mortgages are pitched to seniors, and more retirement planners are viewing HECMs as a valuable retirement tool, industry experts tell National Mortgage News.
“It is forcing the industry to market differently and to look for a new borrower,” Jeffrey Taylor, a reverse mortgage consultant who helped launched the first FHA reverse mortgage product in 1991, tells National Mortgage News.
In the past, many borrowers defaulted when they couldn’t afford to pay taxes and insurance, prompting FHA to change its rules, the article notes.
Ginnie Mae, the agency that sets standards for securitization of FHA loans, has also changed the way reverse mortgages are structured.
Ginnie Mae has banned from its pools fixed-rate reverse mortgages that disburse funds as a line of credit, National Mortgage News reports, adding that the changes influenced warehouse lenders who have since then began to pull back on funding HECMs with fixed-rate lines of credit.
“The net result of the FHA and Ginnie reforms is that the adjustable-rate line of credit now dominates the reverse mortgage scene instead of fixed-rate products,” National Mortgage News reports.
About 75% to 80% of HECMs being originated today are adjustable-rate, Joe Demarkey, the director of product development at Reverse Mortgage Funding, tells National Mortgage News.
The most popular reverse mortgage now is an adjustable-rate HECM with a 10% lifetime cap.
“This means that with a starting interest rate of 3%, the rate cannot go higher than 13% during the life of the reverse mortgage,” says National Mortgage News. “The FHA reported last week that HECM originations totaled $4 billion in the first quarter, up from $3.4 billion in the prior quarter.”
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Written by Cassandra Dowell