The Latest News in the Reverse Mortgage Industry
Reverse mortgages are loans available to senior citizens aged sixty-two and above enabling them to continue to live in their homes while withdrawing their equity in the form of a loan. The funds can be paid to the senior in monthly payments, cash withdrawal or a line of credit. Both singles and couples can remain in their homes for their lifetime unless they decide to sell the property. They are, however, responsible for paying the taxes and insurance on the house.
Recently there have been some changes in the laws and policies governing reverse mortgages. Some are seen as advantageous but others are not looked upon with favor. For instance, prior to obtaining a reverse mortgage, borrowers have been required to participate in counseling sessions. Many seniors have a negative perception of the counseling regarding it as an invasion of their financial privacy as well as an insinuation that they are incapable of managing their affairs.
HUD has now intensified this requirement to the point that borrowers will not only have to discuss their personal finances with a counselor but starting in 2011, they will also have to sit for and pass a test. The seniors who resent this feel that the government regards them as incapable of handling their finances due to their age. HUD's defense is that age isn't involved but this is simply an added protection and therefore a benefit for the prospective borrower.
HUD also initiated the HECM Saver program that began in October of 2010. While the amount of money that a borrower can receive has decreased under the program, there is a significant decrease in the mortgage insurance premium resulting in an overall saving to the borrower.
Another senior benefit for those owning homes valued in excess of $417,000 was the American Recovery and Reinvestment Act passed in February of 2009 that temporarily raised the limit to $625,000. Congress has now enacted another law extending the limit to 2011.
The FHA has also issued Mortgage Letter 2011-01 outlining the procedures that reverse mortgage lenders must use when dealing with seniors who have defaulted on their insurance and tax payments so that foreclosure can be avoided.
However, a change that could be disadvantageous to some seniors is the new HUD policy expected to go into effect around April of 2011 that will require applicants for reverse mortgages to establish that they are worthy of credit.
Nevertheless, the demand for reverse mortgages has dropped with a decline of 35% during 2009. And some reverse mortgage lenders such as Bank of America and Wells Fargo are pulling out of the business. Although they will continue to carry their current accounts, they are not accepting new applicants. At the same time, Reverse Mortgage USA, one of the reverse mortgage lenders in Texas, is in the process of obtaining banking status to secure their future in the business. And in spite of the past decline in granting of reverse mortgages, the owner, John Mitchell is optimistic about the future.
