Reverse mortgage reforms have been a long time coming, writes an AARP blogger in a post this week on big changes coming to the product landscape.
The changes are expected to be announced by the Federal Housing Administration this month in an effort to cut down on FHA insurance losses and shift the focus of the product away from those who take the loan as a lump-sum payment, AARP’s blog post writes. While there is no exact date for the proposed change to be announced, that change will be announced “soon.”
AARP’s blogger writes:
Most reverse mortgage borrowers choose to tap their home equity in a lump sum payment provided by the lender, rather than as a line of credit. But that offering is about to change.
According to a spokesman for the U.S. Department of Housing and Urban Development, lenders will stop providing huge lump sums that equal all or most of the equity in a borrower’s home. Instead, new guidelines about to be released will require borrowers to set aside a portion of the home equity funds to ensure they’ll have enough to pay annual property taxes and home insurance premiums in the future, according to a post by U.S. World News & World Report, which was first to report on the reforms.
A spokesman for HUD told me that these changes will be announced to the public soon but did not give a date.
The reforms are overdue. More reverse mortgages are in default than ever before — about one in 10 — largely because a majority of homeowners can’t pay the annual taxes and property insurance required under the terms of the loans.
Written by Elizabeth Ecker