Recent regulation changes to federal reverse mortgages have transformed the product from a “loan of last resort” to a viable financial planning tool, says Bankrate in a recent article.
Bankrate notes some of the key changes that paved the way for the expanded use of reverse mortgages: allowing non-borrowing spouses of reverse mortgage borrowers who pass away or enter assisted living to remain in their home, and allowing qualified borrowers to obtain an HECM even if their non-borrowing spouse is younger than age 62, with the caveat that the loan’s principal amount will be actuarially based on the age of the younger spouse.
Another major change noted is when the Federal Housing Administration, or FHA, announced its HECM for Purchase Program, which enabled qualified seniors to downsize or relocate by using a reverse mortgage to purchase their new home, thereby saving on closing costs.
“Given the use of actuarial tables in determining the loan amount, it’s going to be a smaller draw as a result,” Ramsey Alwin, vice president of economic security for the National Council on Aging, tells Bankrate. “That may squeeze out some of the individuals who are in crisis mode. But generally speaking, the new policies strengthen the product, protect the consumer and make it well-poised to be an important long-term financial planning tool, most likely for the more moderate- to higher-income population.”
However, concerns regarding reverse mortgages remain.
“There may be more predatory products created that are then attractive to the cash-poor, house-rich individual,” Alwin says. “We need to be vigilant about our consumer protections and consumer awareness for those individuals.”
Overall, the industry may see an uptick in reverse mortgages among finically savvy baby boomers, says Peter Bell, president of the National Reverse Mortgage Lenders Association.
“If instead you take a reverse mortgage as a standby line of credit — a standby cash reserve that enables your other assets to remain intact and continue to grow in value or generate income — you end up with a greater amount of wealth to fund longevity,” he says.
Read the article here.
Written by Cassandra Dowell