Reverse mortgages are a viable option for seniors looking to tap into their home equity to, either get rid of outstanding debt before retirement, or save up for the proverbial “rainy day.”The housing crisis, and subsequent Recession of 2007-2009, however, put a damper on those plans. While the reverse mortgage continued to be a source of untapped income for baby boomers, there was considerably less amount of  money they would be eligible for.Some unprecedented problems arose during this time, mainly with non-borrowing spouses and loan defaults, when homeowners were unable to pay their financial obligations under the reverse mortgage. In addition, some homeowners allowed their homes to fall into disrepair, making the loan due and payable.These reasons have caused the reverse mortgage program to change again, on September 30. While there are still some changes I don’t agree with, there are many, like mandatory set asides (to ensure financial obligations are paid) that are extremely necessary. 

In an article, which appeared in the New York Times, “Tighter Rules Will Make It Harder to Get a Reverse Mortgage,” Ramsey Alwin, senior director of economic security at the National Council on Aging, said:

“The changes really put the product on track as a long-term financial planning tool as opposed to a crisis management tool.”

This is possibly the best rationale I’ve read about why these changes need to happen.

Reverse mortgages have long been viewed as a “last resort”, a “last ditch effort” or “the saving grace for seniors in the gutter”, despite the fact that they have also helped many seniors prepare for retirement. If there is more control over the amount of money available for baby boomers, the program can, potentially, evolve into something greater (and with a better reputation) than previous versions of the program.Perhaps the biggest change will come January 13, with the implementation of a financial assessment for all potential applicants. While the program will no longer be as “all-inclusive” as it used to, it will ensure that those who take out a reverse mortgage will not default on their loans.

Peter H. Bell, president of the National Reverse Mortgage Lenders Association, stated:

“Regulators are trying to shift behavior so that people are more thoughtful and methodical about how they draw the money. The changes are intended to put the program back on track and encourage people to take what they need and no more.”

If past experiences have taught us anything is we shouldn’t live beyond our means, these changes will ensure that we don’t, making the reverse mortgage program more prosperous in the future.Who will benefit from the new reverse mortgage changes? Hopefully everyone!If you think a reverse mortgage is right for you or simply want more information, call PS Financial Services, at (888) 845-6630 or email us at info@PSReverseMortgage.com. We do not pressure those who inquire, we are simply here to help.