On a recent call with FHA, reverse mortgage professionals were briefed on new changes that are set to take place towards the end of summer 2013. As announced here previously we will be having the Standard Fixed rate HECM (reverse mortgage) taken away as of April 1st. Those who have done an application on or before March 31st and whose loan funds before July 1st will still be allowed to obtain a fixed rate standard reverse. On this most recent call we were also told there will be new guidelines put in place sometime around August or September of this year. These changes if enacted will have a profound effect on the industry as a whole.
According to FHA they will begin to require a partial credit underwrite as well as impound account and perhaps even a limit on how the proceeds of a reverse mortgage are spend by the consumer. Previously and as of right now there are no such restrictions. All of these possible new implementations will limit the amount of borrowers that qualify for a reverse mortgage. Setting up an escrow set aside for taxes and insurance and using credit and income to qualify borrowers will make it much more difficult to obtain a reverse mortgage. We do expect the credit and income underwrite to be minimal compared to a traditional mortgage but will still be difficult for some. If the borrower has ever shown an inability to pay their property taxes (ie missed or late tax payments) they may be forced to use a sizeable amount of the proceeds to set aside for that purpose. In my opinion the worst possible change is the principal limit usage. That allows FHA to limit the amount of cash out you as the borrower will be allowed to take out. Let’s say you qualify for a $300,000 loan amount and only need to pay off a $100,000 loan, FHA will allow you to take a certain amount of that extra $200,000 as cash out but the rest may have to go into a line of credit etc regardless of your wishes. When pressed on the calculations of this limit I was told there is not one yet. They do feel confident that it will be put into place but they are not sure of the exact guidelines right now.
More and more the future of the reverse mortgage is up in the air. While we all feel the product will be around for years to come in some capacity as it is such an asset to seniors, we are not sure what it will look like in the future or who will qualify. We are also not sure if perhaps FHA may change their mind on some of these changes before they are released due to some of the feedback they are getting. A holdback for taxes and insurance as well as a limited credit and income underwrite are sure to come. As far as the limit on the cash out amounts, we’ll have to wait and see. The best lesson to take away from this article is that now is the time. If you or anyone you know is considering a reverse or has in the past now is the best time before all of these limitations are put in place.