As promised, the new reverse mortgage programs changes, approved in the Reverse Mortgage Stabilization of 2013, came into effect on September 30th. Guidelines for paying mandatory obligations and the financial assessment components will come into effect on January 13 of next year.
While not all the components of the new changes have been worked out, there’s no denying that the reverse mortgage program will no longer be the program we have come to know.
Will it still help seniors in need? Yes.
Will it still be a valuable retirement planning tool? Yes.
It’s time to still have to consider how these changes will affect how those who apply for the program qualify…it will no longer be the all-inclusive program that it used be…but this doesn’t mean that it will be anything less than it was.
For one thing it will still be the only program of its kind, regardless of how many imitations come out of the wood work.
To reiterate, the new program changes will include:
Limits to the amount of funds that can be withdrawn at the time of closing, or during the first 12 months after closing, to only 60% of the Initial Principal Limit. If the borrower has mandatory obligations to fulfill, such as paying off a present mortgage, the funds withdrawn will equal the sum of the financial obligations and an additional 10% of the IPL.
Mandatory obligations may include, but isn’t limited to:
Fees associated with
Debts (Delinquent or Otherwise)
Repairs made to the house after appraisal
At closing, if the amount disbursed does not exceed 60% of the IPL, then HUD will charge an upfront Mortgage Insurance Premium of .50% of the Maximum Claim Amount. If the disbursements exceed 60%, then HUD will charge an upfront fee of 2.50%. The annual MIP annual rate will continue to 1.25% on all HECM loans after the initial fee.
As of January, a financial assessment will be required of all applicants for all HECM transactions, including refinancing, purchasing as well as traditional loans.
Components of a financial assessment will include, but aren’t limited to:
Credit History Analysis
A Cash Flow/Residual Income Analysis
Analyzing of the applicant has the financial means to continue paying property taxes, insurance and other financial obligations such as regular home maintenance.
The new changes don’t signal the end of the program but an initiative to make the program better, one step at a time.