Reverse Mortgages Will Soon Be Less Attractive

One way to supplement your income in retirement is about to become tougher. The Trump administration just announced new policies taking effect Oct. 2 that will increase the upfront cost of reverse mortgages for many borrowers and reduce the size of the loans.

If you’re 62 or older (the reverse mortgage age requirement) and have been thinking about converting your home equity into cash, you may want to apply for a reverse mortgage before the new rules kick in next month.

Smaller Reverse Mortgages, Bigger Upfront Premiums

“Many consumers getting reverse mortgages after Oct. 2 will get a lesser amount of money than before and, depending on how they draw out the money, will pay more in mortgage premiums,” said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.

“The issue,” Bell added, “is that the [Home Equity Conversion Mortgage or HECM] program costs more to administer than the Trump administration feels is justified or that the premiums cover.” With a HECM reverse mortgage, you pay an FHA-approved lender an upfront fee and then have access to a percentage of your home equity. The loan is repaid when you move, sell the home, die or fail to pay property taxes or homeowners insurance to maintain the property. The maximum size of a reverse mortgage depends on your age, home value, interest rate and upfront costs.

Last year, the U.S. Department of Housing and Urban Development (HUD) said, the economic value of the government’s reverse mortgage program (part of HUD’s FHA) was a negative $7.7 billion.

Making the Federal HECM Reverse Mortgage Program ‘Viable’

Today, a HUD press release said, “younger, lower-income homeowners with traditional FHA-insured ‘forward mortgages’ are routinely bailing out the HECM program through the mortgage insurance premiums they pay.” Consequently, it added, the HECM program “can no longer remain viable in its present form.”

The planned changes to the reverse mortgage program “are huge; they’re very significant,” said Phil Stevenson, owner and principal of the reverse mortgage lender PS Financial Services and a Certified Reverse Mortgage Professional.

They also came as something of a surprise. “We had some inkling” that changes were afoot, Bell said. But HUD didn’t tell the reverse mortgage industry or consumers what was planned until the recent announcement was a fait accompli.

“You always expect the right to be less regulatory and for less government,” said Stevenson. “Now they are forcing our hand without even consulting the industry.”  Click here to continue reading.