The last call I took last night and the first call I took this morning were basically this: What do upcoming changes to the reverse mortgage program mean for senior homeowners?
First, let me hasten to say no one yet knows exactly what the changes will look like – but, we do have a general idea. Following is a rundown on proposed changes and a brief explanation as to why Congress deems changes necessary.
Change: Financial Assessment
What: It has always been required that homeowners pay their homeowners insurance and property taxes, and maintain routine upkeep on their home. With the proposed changes, lenders will be required to perform a financial assessment to determine if potential borrowers can meet these obligations.
Why: Only a minority of reverse mortgages get into trouble. But, on the ones that do, tax and insurance defaults are the number one reason.
Change: Limits on Initial Draws
What: An initial draw is the amount the homeowner requests when the loan closes. Currently, the upfront draw can be up to the full amount homeowners qualify for, as determined by their age, the value of the home, and the prevailing interest rate. Changes will likely limit the amount homeowners can take upfront.
Why: The assumption is that limiting the upfront draw will help with long-term financial planning.
Change: Inclusion of Younger Spouse
What: Currently, only homeowners aged 62 and older can be on a reverse mortgage loan. Under the proposed changes, both spouses would be on the loan, even if one is under the age of 62.
Why: This change would give the younger spouse more options regarding staying in the home if the older spouse passes away.
Both Congress and the largest senior advocacy groups remain highly supportive of the FHA-insured reverse mortgage program. Additionally, Congress has specifically said it views reverse mortgage as an important component of long-term financial planning for the retirement years.
Proposed changes appear to be well thought-out, and designed to safeguard the long-term availability of reverse mortgages.
Give me a call with your questions or concerns. I always love hearing from you.
Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 · Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com
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