Reverse Mortgage changes

12 years ago

New Barriers To Reverse Mortgages

SmartMoney Nov 22, 2011

Changes are in store for the way reverse mortgages are processed that might make it more difficult for some borrowers to qualify.

....the U.S. Department of Housing and Urban Development, which oversees FHA, is working on new regulations - likely to debut in 2012 - that would require lenders to perform such financial underwriting. As a result, "it is possible that some borrowers who could have gotten a reverse mortgage before" will no longer qualify.

The new regulations are also likely to give lenders the right to require borrowers with smaller financial cushions to receive monthly payments, rather than a lump sum. To ensure that borrowers have enough cash to cover their property taxes and homeowner's insurance premiums, the new regulations may also allow lenders to set aside a portion of a reverse mortgage's proceeds for those expenses."

Here is a link that might be useful: Reverse Mortgages, full article

Comments (4)

marie_ndcal
11 years ago
There are more dangers to this program that are being told to us. Many people have lost everything.
jeichs
11 years ago
Hmm...Marie that's quite a generalization!

Here is the biggest danger; if you don't pay your property taxes or homeowners insurance you will go in default...but that's the exact same way a forward mortgage works.

The only other danger is if one spouse decides not to go on the reverse mortgage(for age reasons normally); if the spouse on the reverse mortgage passes away...the surviving spouse will have to refi or sell the house within a year. But that's ONLY if the surviving spouse is not on the reverse mortgage. AND, both spouses are required to be educated on this aspect by a HUD counselor.

These programs aren't for everybody; but generalizing without specifics doesn't help anyone..

Jason
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I work as a legal assistant in a large law firm that represents banks in foreclosures. A lot of our cases are reverse mortgages. I can't mention particular reverse mortgage companies, but I will say don't do it! Reverse mortgages, for the most part, due to their nature, can't be reinstated (brought current), only paid off, either completely or through a shortfall pay off amount negotiated with the mortgage company. That makes it a lot harder to get a house out of foreclosure once it is in foreclosure. The problems for heirs mentioned in the NY Times article are bad, of course, but what is worse is when the company forecloses against a still living mortgagor. Or when one spouse is on the reverse mortgage but the other is not and the one on the reverse mortgage passes and there is no plan or protection in place to stop the reverse mortgage company from foreclosing, making the living spouse effectively homeless, a situation I have seen more than once in our cases.
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Thank you all for your replies. I believe we are going to arrange for the mandatory counseling and apply. I have taken many of your thoughts into consideration. I question why someone would think I should not use the equity in my house for recreational purposes as if this were some kind of "cheating the government" or something. This is a home we have sunk any spare money we've had over the past 38 years by keeping it pristine and up to date. Why should we NOT treat it as an asset and use our equity to enjoy travel etc.? Our four "kids" are all well-off thanks to us footing their college bills many years ago, we have excellent health care which we pay for, we have nursing home insurance, and a vacation home. We are just finding ourselves house-poor lately with our condominium maintenance and assessments in Florida (because of foreclosures!) and just the general cost of living. Even traveling has become much more expensive! And, yes, we sometimes spend too much on the grandkids and just daily living now that we're retired. My only concern is that the condo might be considered our primary residence because we lived and filed taxes there for the past two years, as well as obtained drivers licenses there. (We did not rent this house out....we lived here for about 5 months of each year.) This year we came back to living most of time in the house and have once again obtained drivers licenses here. We came back because of a non-life-threatening health issue - our doctors are here. We intend to keep the condo to use for about 3 months of every year. When I called someone to start asking questions, the first thing they wanted to do was get my name, address, etc....basically "start a file"....I just wanted to ask a question first before going down that road. Thank you all for your help. If anyone has anything to add, I'll keep watching....
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From what I've heard, the fees and charges eat up the equity--giving the lending institution the lion's share while the homeowner gets very, very little cash in hand. The advice I've heard from reputable, knowledgeable financial people (who aren't trying to sell these things) is not to touch them with a 100 foot pole. Be very, very careful, if you're considering this. Make sure you get EVERYTHING in writing, and take your time making up your mind. Speak to as many people as you can who might be qualified to help you understand the process and profits. Me? I wouldn't go near one. I don't like giving up control, I wouldn't be comfortable with someone else owning my home. Were I to find myself in a position where I might consider one, I'd prefer to sell my home, bank the profits, and get a small, affordable sr. citizen appartment. Alternatively, I might decide to take in a boarder, if I could find one I felt could be trusted and was financially stable.
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To try to make it clear..my point was that this man was wealthy, yet he entered into a reverse mortgage on the home that he had lived in all his life. I think of a reverse mortgage as something home owners do when finances are tight. For whatever reason, the bank in this situation had paid out more than the home was worth at the time of Andy's death...probably because Andy even though he signed a contract to do so, put no upkeep into it in the 25 years or so of this RM. Our government guarantees these 'loans' so that the lender cannot loose in situations like this. That would be tax payer's money, yours and mine. The relatives of Ann and Andy inheritated the rest of the estate as they should have. It just seems wrong to me in cases like this where the home owner has the means to do right, but dosen't, that we the taxpayer gets the bill.
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azzalea
11 years ago
Well, there's also the fact that the fees and charges are enormous.

We have known people who have lost everything going this route. It's a dangerous decision to make.

I'd far rather sell my home outright, get the full price (minus broker's commission, of course) in my pocket to invest, spend or bequeath as I like, and go into one of the very nice senior apt. buildings in my area. Reverse mortgages are NOT designed to benefit the homeowner.
pamghatten
11 years ago
I'll agree with Jason ... "generalizing without specifics doesn't help anyone.."

The fees and charges are not enormous ... compare them to a regular FHA forward loan, and the difference in the fees is the origination charge for the Reverse loan, which many lenders waive. There are also new low cost options available. Like any other mortgage product, borrowers need to shop around for the best deal they can find.

If people lost everything, then they didn't take the time to understand the product before they took it out or they couldn't manage their money. It takes an informed decision, not dangerous one.

Again, as Jason said ... there programs aren't for everyone ... but they certainly help many people who want to stay in their home.

And another option is to do exactly what you would do ... but many people would rather stay in their home. Reverse mortgages ARE designed to benefit a homeowner without the means to stay in their home, if that's the choice they want to make.

Reverse Mortgage changes

Comments (4)

marie_ndcal

jeichs

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azzalea

pamghatten

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