Retirement just got tougher, with forthcoming new rules that will make it more difficult for senior borrowers to draw down on their home equity through the use of reverse mortgages, writes “Nerd Wallet” columnist Mike Anderson this week.
Pointing to the September 30 cutoff for the former program rules, the changes are “bad news” for seniors, Anderson writes, making the program less attractive. The column details the changes from a limit on the initial draw borrowers can receive to a decrease in the percentage of a home’s value its owner can access under the program starting October 1. “The changes are intended to make people more careful about how they fund their retirement,” the column writes. “The FHA wants borrowers to take out only what they need and what they can afford. The program strives to be less a safety net for financial emergencies and more a longer-term financial planning tool.” Yet the outcome is ultimately an additional expense for an already costly process of faring financially in retirement, Anderson writes. “Of course, these changes present additional challenges to the already expensive process of retirement.” View the column at Nerd Wallet. Check out more articles at James Clooney WS The New York Times is reporting that reverse mortgages are about to change again and it means less money for new borrowers and as a result, fewer will qualify.
Under the new rules, which are set to go into place Oct. 1st, borrowers will typically receive about 15% less than they do today and have restrictions on how they can utilize the money. “The changes really put the product on track as a long-term financial planning tool as opposed to a crisis management tool,” said Ramsey Alwin, senior director of economic security at the National Council on Aging during an interview with the NY Times. The Federal Housing Administration, the agency that insures the majority of reverse mortgages today hopes the changes will encourage people to utilize their equity at a slower rate and enable them to age in place. “What regulators are trying to do is shift behavior so that people are more thoughtful and methodical about how they draw the money,” said Peter H. Bell, president of the National Reverse Mortgage Lenders Association, the industry trade group during an interview. “The changes are intended to put the program back on track and encourage people to take what they need and no more.” source: http://reversemortgagedaily.com/2013/09/09/ny-times-reverse-mortgages-about-to-change-again/ Jim Clooney Online The Department of Housing and Urban Development today announced much-anticipated changes to its home Equity Conversion Mortgage program that will help manage risk to the Federal Housing Administration’s insurance fund as well as improve safety for reverse mortgage borrowers.
The changes are detailed in mortgagee letters 2013-27 and 2013-28 posted by HUD Tuesday and include the consolidation of the HECM Standard and HECM Saver programs into one. Among additional changes are updates to the initial mortgage insurance premiums and principal limit factors; restrictions on the amount of funds borrowers may draw down at closing and during the first 12 months following closing; the requirement of a financial assessment for all borrowers to ensure that they have the capacity and willingness to meet their financial obligations and the terms of the reverse mortgage; and the requirement of a set-aside at closing for the payment of property taxes and insurance based on the results of the Financial Assessment. The financial assessment and property charge requirements will be effective for all loans with case numbers assigned on or after January 13, 2014. Changes to initial disbursement limits, single disbursement lump sum payment option, initial Mortgage Insurance Premiums, Principal Limit Factor Tables and initial Mortgage Insurance Premium calculations for refinance transactions are effective for case numbers assigned on or after September 30, 2013. “The changes being announced today will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” said Federal Housing Commissioner Carol Galante. “Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes.” Lenders can view the program changes via the mortgage letter as well as additional documents provided on HUD’s website that further detail the changes. The changes have been made possible by the Reverse Mortgage Stabilization Act of 2013, which authorizes the HUD Secretary to establish additional or alternative requirements determined to be necessary to improve the fiscal safety and soundness of the HECM program. Source: http://reversemortgagedaily.com/2013/09/03/hud-announces-official-changes-to-improve-reverse-mortgage-program/ WASHINGTON — Three years ago, with his former partner suffering from cancer, Jim Dorsey decided to borrow against the equity on his Vashon Island, Wash., home with a reverse mortgage. The couple didn't have children and didn't plan to move, so a loan that didn't have to be repaid until he died seemed like a good deal.
Dorsey, 69, isn't so sure now. The retired high school teacher figures the loan — which netted him a $75,000 lump sum after paying off his mortgage — will reduce his home equity by $100,000, compared with what it otherwise might have been, if he lives another decade. Then again, Dorsey can stay in the house for as long as he pays his property taxes and homeowner's insurance. Plus, he won't be liable for the shortfall if his final loan balance exceeds his home's value, either because of falling real-estate prices or because he lives longer than expected. That's because almost all reverse mortgages since 1989 have been insured by the Federal Housing Administration. The agency collects mortgage-insurance premiums from borrowers, much of which are used to make lenders whole if borrowers default or home prices drop. “The feds are assuming the risk,” he said. “The bank is in the catbird seat.” That risk has put the FHA's reverse-mortgage portfolio $5.25 billion in the hole as worrisome numbers of borrowers fail to keep up with taxes and insurance or convey their homes to the FHA rather than go through the expense of marketing and selling their properties. In response, Congress recently passed legislation sponsored by U.S. Rep. Denny Heck, D-Wash., allowing the FHA to fast-track changes to stem the deficit. President Obama signed the bill. The agency plans to use the new authority to tighten lending terms that could reduce loan amounts or even disqualify some borrowers. Among the proposed changes are requiring a review of applicants' finances before granting a loan, and mandating an escrow account to set aside money for taxes and insurance. The new rules are scheduled to take effect Oct. 1. The legislation's passage follows an FHA administrative action in April to steer borrowers to lower-fee, lower-payout loans to reduce stress on the agency's insurance fund. Some consumer advocates fear the pending changes could lock seniors out of reverse mortgages or drastically lower their borrowing limits. That's a worry because retirement experts expect more pension- and savings-poor Americans to tap their home equity after their paychecks end. The FHA intends to limit the amount borrowers can draw at the beginning of the loan, possibly tied to the size of the existing mortgage they need to pay off and other types of debt. “We will get frantic calls from borrowers,” said Erin Reardon, a reverse-mortgage counselor with Solid Ground, a nonprofit anti-poverty group in Seattle. Any time rules change, borrowers are “rushed into getting the loan when they usually might have taken more time to think about it.” The number of Americans taking out reverse mortgages fell for a third straight year to 54,591 in fiscal 2012. But that number is expected to spike in coming years as more baby boomers finance retirement. Anthony Webb, research economist at the Center for Retirement Research at Boston College, said the need is being driven by the rising age for Social Security eligibility and inadequate savings. But Webb put most blame on disappearing pensions. Between 1989 and 2010, the percentage of American workers with defined-benefit pensions that pay specific, promised sums fell by two-thirds to just 8 percent. “I think more Americans, out of necessity, will turn to reverse mortgages,” he said. Dorsey, who separated from his partner, said reverse mortgages come with trade-offs: cash now or equity later. He said fees ate up a substantial portion of his original draw. “Do you need the cash? If so, then reverse mortgages may be a sound choice,” he said. “Do you value future equity? If so, then reverse mortgages may not be a good choice.” Source: http://triblive.com/business/headlines/4541058-74/reverse-mortgages-borrowers#axzz2cQE9MiLT WASHINGTON — Three years ago, with his former partner suffering from cancer, Jim Dorsey decided to borrow against the equity on his Vashon Island home with a reverse mortgage. The couple didn’t have children and didn’t plan to move, so a loan that didn’t have to be repaid until he died seemed like a good deal.
Dorsey, 69, isn’t so sure now. The retired high-school teacher figures the loan — which netted him a $75,000 lump sum after paying off his existing mortgage — will reduce his home equity by $100,000, compared with what it otherwise might have been, if he lives another decade. Then again, Dorsey can stay in the house for as long as he pays his property taxes and homeowner’s insurance. Plus, he won’t be liable for the shortfall if his final loan balance exceeds hishome’s value, either because of falling real-estate prices or because he lives longer than expected. That’s because almost all reverse mortgages since 1989 have been insured by the Federal Housing Administration (FHA). The agency collects mortgage-insurance premiums from borrowers, much of which are used to make lenders whole if borrowers default or if home prices drop. “The feds are assuming the risk,” he said. “The bank is in the catbird seat.” That risk has put the FHA’s reverse-mortgage portfolio $5.25 billion in the hole as worrisome numbers of borrowers fail to keep up with taxes and insurance or convey their homes to the FHA rather than go through the expense of marketing and selling their properties. In response, Congress last week passed legislation sponsored by U.S. Rep. Denny Heck, D-Olympia, allowing the FHA to fast-track changes to stem the deficit. President Obama signed the bill Friday. The agency plans to use the new authority to tighten lending terms that could reduce loan amounts or even disqualify some borrowers. Among the proposed changes are requiring a review of applicants’ finances before granting a loan, and mandating an escrow account to set aside money for taxes and insurance. The new rules are scheduled to take effect Oct. 1. Drastic changes feared The legislation’s passage comes on the heels of an FHA administrative action in April to steer borrowers to lower-fee, lower-payout loans to reduce stress on the agency’s insurance fund. Some consumer advocates fear the pending changes could lock seniors out of reverse mortgages or drastically lower their borrowing limits. That’s a worry because retirement experts expect more pension- and savings-poor Americans to tap their home equity after paychecks end. Heck said his legislation was a “twofer” win for seniors and taxpayers. Giving the FHA quick authority to shore up its reverse-mortgage program of Home Equity Conversion Mortgages (HECM), Heck said, protects against defaults and minimizes the tab for the Treasury. Heck acknowledged critics regard reverse mortgages as inherently predatory. Unlike home-equity loans, for instance, reverse mortgages carry origination fees, mortgage-insurance premiums, closing costs and other expenses. Then there are those who believe “the FHA shouldn’t even exist at all,” he said. Conservative congressional Republicans want to greatly pare back the federal government’s role in insuring private mortgages, including returning the FHA to its original mission of focusing on low-income and first-time buyers. More complication ahead? Erin Reardon, a reverse-mortgage counselor with Solid Ground, a nonprofit anti-poverty group in Seattle, warned that the FHA’s new guidelines could sow more confusion with a product that’s already complicated. Reverse mortgages are available to any homeowner 62 or older. Borrowers receive a portion of the home’s appraised value, with older seniors allowed to tap more equity. The loans do not have to be repaid until borrowers die, move or sell. They are the opposite of traditional mortgages: Loan balances grow, not shrink, with interest, over time, chiseling away equity. Reardon said one of the attractions of reverse mortgages is that they do not require credit histories or sufficient cash flow. She’s waiting to find out whether the FHA’s new financial-assessment rules might knock out potential borrowers. Reardon also worried that mandatory reserves for taxes and insurance might leave some seniors with little or nothing from their home equity. The FHA has not issued formal guidelines, but agency officials have indicated the escrow set-asides could equal two years’ worth of taxes and insurance or even cover the full duration of the loan, which can last 30 years or longer. As of February 2012, a record 54,000 borrowers, or 9.4 percent of reverse-mortgage holders, were at risk of foreclosure because they failed to keep up with property taxes and homeowner’s insurance. The FHA also intends to limit the amount borrowers can draw at the beginning of the loan, possibly tied to the size of the existing mortgage they need to pay off and other types of debt. “We will get frantic calls from borrowers,” Reardon said. Any time rules change, borrowers are “rushed into getting the loan when they usually might have taken more time to think about it.” Hard-pressed retirees The number of Americans taking out reverse mortgages fell for a third straight year to 54,591 in fiscal 2012. But that number is expected to spike in coming years as more baby boomers finance retirement. Anthony Webb, research economist at the Center for Retirement Research at Boston College, said the need is being driven by the rising age for Social Security eligibility and inadequate savings. But Webb put most blame on disappearing pensions. Between 1989 and 2010, the percentage of American workers with defined-benefit pensions that pay specific, promised sums fell by two-thirds to just 8 percent. “I think more Americans, out of necessity, will turn to reverse mortgages,” he said. Dorsey, who separated from his partner, said reverse mortgages come with trade-offs: cash now or equity later. He said fees ate up a substantial portion of his original draw. In exchange, he can stay put in his home as long as he keeps it in good repair. “Do you need the cash? If so, then reverse mortgages may be a sound choice,” he said. “Do you value future equity? If so, then reverse mortgages may not be a good choice.” Source: http://seattletimes.com/html/localnews/2021579933_reversemortgagexml.html Quick Facts:
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