The Reverse Mortgage Program (As We Know It) Is GONE…October 1st!The Department of Housing and Urban Development, and reverse mortgage industry as a whole, has begun to slowly reveal what their plans are for the reverse mortgage program, following the Senate and Presidential approval of Reverse Mortgage Stabilization Act of 2013. According to an article published in Reverse Mortgage Daily, “HUD to Combine Existing Reverse Mortgage Products,” at a recent conference call for the National Reverse Mortgage Lenders Association, the HUD Deputy Assistant Secretary Charles Coulter, explained the proposed changes.
Proposed changes, aside from those initially sought to stabilize the program, include the introduction of a new reverse mortgage loan program all together!
In effect, HUD will discontinue the two existing programs, the HECM Standard and HECM Saver, as we know them. The new loan program will come with new principal limit factors (the amount of money that can be drawn based on the appraised value) that range from the current Standard and Saver programs, although HUD failed to provide exact details on where the new principal limit will fall. In a sense, it will combine the two existing programs, in order to create a new program that falls somewhere in between.
If the Standard currently pays 60% of the appraised value and the Saver pays 40%, the new hybrid program will pay around 50%
THIS MEANS LESS MONEY FOR RETIREMENT FOR THOSE IN NEED!In addition, the article explains that “the new reverse mortgage program will come with mortgage insurance premiums that will be dependent upon the amount that is drawn upfront and whether the amount falls under or exceeds a 60% threshold.” Only borrowers with mandatory financial obligations, such as mortgage payments, will be able to exceed the 60%. If you are going to use your reverse mortgage as a retirement planning tool, the amount you will receive initially will be less than 60%.
EXAMPLE: If you currently have a $100k value, you can most likely get $60k today. After October 1st on that same $100k value you can get $50k, IF and only IF you are using that $50k to pay off a “mandatory financial obligation”. Otherwise you may only get 30k initially (60% of the $50k) and the other $20k over time. This is great for the industry, but how good is it for the consumer/borrower?Reverse mortgage industry officials have stated that the changes coming to the program will help support FHA’s insurance fund, which had a loss of $5 billion last year on reverse mortgage loan defaults, as well as make the products they offer safer and more sustainable for borrowers. The additional changes, which include a financial assessment of borrowers and mandatory set asides for property taxes and homeowners insurance, will not be include in the first set of program changes. However, they will be implemented in the upcoming months after the initial changes take effect. HUD will fully implement these changes by October 1, 2013, which is the beginning of fiscal year 2014 for the US government. The amount of changes coming to the program makes me weary of what the future holds, but we have adapted to change before and we will again. Hopefully, these changes don’t create a “Frankenstein reverse mortgage program”, one that can potentially do more harm than good. Interested in a reverse mortgage or simply have questions? Give PS Financial Services a call at (888) 845-6630 or email us at info@PSReverseMortgage.com. We do not pressure those who inquire, we are simply here to help. Changes are coming to the reverse mortgage…the time to act is NOW!