It’s a question that has been on my mind for a while. In truth, I don’t think any ONE specific reason can be attributed to the changes that have happened to the reverse mortgage program this past year alone.
It was more of a collection of habits and situations that ultimately lead to the approval of the Reverse Mortgage Stabilization of 2013, which approved the upcoming changes, set to be implemented September 30.
Maybe it was the “all-inclusive” approach of the program. While I appreciate that created an option for seniors to benefit from, with minimal hassle, there is a reason why many loans require a lot of paperwork. In the end, the reverse mortgage is going the way of the home equity loan with the financial assessment. I don’t want to say it was inevitable but it sure seems like it. Regardless, what the program will continue to do for seniors who qualify will be more than worth the flaming hoops.
Maybe it was the over-reliance on lump sums. Most reverse mortgage loans are distributed via lump sum (taking it all out at once), tenure payments (equal monthly payments for a specific period of time/during the borrower’s lifetime) or a line of credit (gives borrower control over when and how much is withdrawn at any given moment). The problem would arise when borrowers would take out the loan in its entirety and burn through the proceeds that much quicker. The line of credit is a more money conscious option while the tenure payments only allow you to spend what you need to. Both are more valuable are more valuable to homeowners than the lump sum, although some situations did require it.
Maybe it was the lack of consumer awareness. Many reverse mortgage loans in default rose when homeowners, who had already burned through their lump sum, were unable to pay their obligations. Namely, their homeowners insurance, property taxes, and regularly maintaining the primary home as a condition of obtaining their reverse mortgage. In addition, because previous cases lacked a financial assessment of any sort, homeowners who had burned through their loan didn’t have any extra cash flow to prevent the loan from becoming due and payable. More awareness to their responsibilities as borrowers as well as a guarantee that their financial obligations will be taken care of is a potential solution to what used to be a dangerous problem.
In short, not one thing caused the changes to the Reverse Mortgage Program but we were all responsible in some way. Now that we have another chance to make it better, let’s not waste it.
At PS Financial Services, we do not pressure those who inquire. We simply educate and guide our clients. If you think a reverse mortgage is right for you or you want more information? Give us a call at (888) 845-6630 to speak to one of our brokers or email us at info@PSReverseMortgage.com.