Changes on the Horizon for Seniors Seeking a Reverse Mortgage
By Christopher Beard
Seniors seem to be gaining clarity of the purpose for a reverse mortgage with over 72,000 FHA Home Equity Conversion Mortgage loan units completed in 2010 and close to that for 2011 expected, which is low compared to 2006-2009 when the industry peaked. Industry wide changes are on the horizon for senior homeowners who want to take out a reverse loan in the coming year though here are a few of the changes that can be expected in the coming year. Here are a few changes to expect:
Home Values & Equity – Home prices could continue to drop due to highest foreclosure high ever hitting in October of 2011 therefore likely to further reduce senior’s home equity, according to National Reverse Mortgage lenders Association (NRMLA) American seniors home equity dropped by 63 billion between the 1st and 2nd Quarters of this year. Equity is the base for determining if a senior homeowner qualifies and partially determines how much cash they will receive.
Income Qualification – While the home equity conversion mortgage has been primarily equity based loan with little documentation of income; changes are on the horizon due to the default rates on reverse mortgages. According to the NRMLA’s endorsed guidelines seniors will need to document sufficient income with tax returns to document capacity to cover the annual homeowners insurance and property taxes. While the qualifying is still much more liberal than a forward mortgage where you must have income to cover the new mortgage debt, some seniors just may not qualify as before.
Credit history – Borrowers with some credit dings won’t necessarily be eliminated, but underwriters will review mortgage payment history and those homeowners with bankruptcies, recent foreclosure’s and tax liens may not qualify. Tax liens will need to be paid off through the reverse loan proceeds making the loan not work or as beneficial for some.
Rates – Rates are historically low, it is unlikely that they will remain this low indefinitely and at some point begin to increase again. Higher rates erode equity quicker making a reverse loan less attractive to provide sufficient funding to last through a seniors remaining years of life. Now is the time to act on these low rates.
Why the Change
Prevention of defaults and establishing the reverse mortgage as a stable and effective option for senior homeowners primarily is the reason for the change. Approximately 5% of all reverse’s are speculated to be in default on taxes and insurance which is a requirement for borrowers of reverse mortgages. Set aside are not required for HECM reverse loans and while the option is available most borrowers choose to pay them on their own to receive the most funds back at closing. On a positive note In late November 2011 Congress and President Obama signed a bill appropriating approximately $45 million toward Housing counseling which will provide consumer safeguards for seniors looking into the suitability of a reverse loan, this counseling which is required for all borrowers prior to closing on the reverse loan. A portion will also be applied to those who are defaulting as a measure of prevention to stop the foreclosure process.
The Federal Housing Administration (FHA) has not established any regulation changes but they have confirmed lenders may establish additional financial assessment or qualification’s to help avoid further defaults and make the reverse programs succeed.
Several big reverse lenders like MetLife have already began a new implementation of this financial assessment, the guidelines were endorsed by the National Reverse Mortgage Lenders Association but each lender can establish their own criteria for underwriting these loans.. Anticipating these changes will eventually spread across the top reverse mortgage lenders. With these changes underway now may be the best opportunity to take advantage of a reverse mortgage.
Go Local Reverse Mortgage connects senior homeowners with National HECM approved reverse mortgage lenders and specialist to qualify, determine eligibility, educate and simplify the reverse mortgage process by walking them through step by step. Complete our calculator for a instant estimate and have only one licensed reverse mortgage expert to review your situation there is no obligation or cost. Visit our website here Reverse Mortgage Calculator
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