Changes Coming to Reverse Mortgage Loans

If you watch television at all, there’s a good chance at some point you’ve seen a reverse mortgage loan ad featuring Tom Selleck. Reverse mortgage loans are available to people 62 years old and up who have considerable home equity. With a reverse mortgage, they can borow against the value of their home and receive either a lump sum payment or monthly payments. New changes maybe coming to the structure of the reverse mortgage program. Last month HUD proposed three main amendments to preserve reverse mortgages for the future.

 

 

Reverse mortgage loans have surged in popularity since they were first introduced in 1990. While initially slow to pick up, currently over 1 million reverse mortgage loans have been sold since their inception. Seniors who are strapped for cash turn to reverse mortgages to convert their home equity into cash income. However, recently Housing and Urban Development secretary Ben Carson announced new rules regarding reverse mortgages. Included in the recommended reforms are:

 

Amend HECM’s Loan Limit Structure

The purpose of changing the loan limits for Home Equity Conversion Mortgages (HECM) is to “ reflect variation in local housing markets and regional economies across the U.S. instead of the current national loan limit set to the level of high-cost markets in the forward program” to ensure that these mortgage opportunities remain available to seniors.

 

Separate HECM capital reserve ratio and remove HECMs as obligations to the MMIF

This provision is intended to “provide for a more transparent accounting of the program costs and decrease the cross-subsidization that 6 occurs with mission borrowers in the forward mortgage portfolio.” This will allow the process to be open and available for all to see. 

 

FHA eliminate HECM-to-HECM refinances

This reform is necessary as these loan transactions result in “greater appraisal inflation, increasing program costs, and negatively impacting GNMAguaranteed HECM MBS (HMBS) due to quick “churn” in pool participations.”

 

 

Experts say that these changes are necessary to preserve the future of the reverse mortgage loan program. Some however are more skeptical, fearing that the changes will result in driving up costs for seniors. In 2012, FHA reported a loss on reverse mortgage loans of $1.7B. Following the market collapse, HUB has consistently taken steps to tighten up the process by decreasing the amounts available to borrowers and by being more stern about appraisals. 

 

In the written testimony to the Senate Committee on Banking, Housing, and Urban Affairs, sec. Carson details the purpose of these reforms stating, “Reform will reduce the Federal Government’s outsized role in housing finance and prevent its activities from crowding out the private sector.” Carson hopes these reforms will ensure the stability of the reverse mortgage loans program and be kinder to taxpayers. 

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