The Reverse Mortgage Stabilization Act has been passed by the House and the Senate and now signed into law by the President. This Act was put in to place to make the FHA HECM or “reverse mortgage” program more stable and financially secure. This will make it much more difficult for several seniors to qualify for a reverse mortgage. The first changes to be implemented under this act will be put into place on October 1st 2013 and the rest will follow shortly after the beginning of 2014. Ahead we will discuss those changes and how they will impact seniors trying to obtain a reverse mortgage after they are implemented.
We had thought that FHA would implement an escrow set aside for taxes and insurance as well as a financial assessment by October 1st 2013 and then might consider some type of limit to the amount of cash out a borrower would be able to get at a later date. Unfortunately they decided to do the opposite. Right now we have two main reverse products, the saver and the standard. The saver gives you 10%-18% less cash out but is much less expensive as there is a very minimal upfront mortgage insurance premium charge (0.01% of the value of the property). The saver also currently comes in either an adjustable or a fixed rate, with the fixed rate the borrower must take all funds as cash out while the adjustable offers an optional line of credit etc. The standard loan has an upfront MIP fee of 2% of the value of the property but gives you access to much more money. Currently only an adjustable may be selected with the standards.
On October 1st 2013 FHA will eliminate both the standard and the saver and come out with one product with borrowing limits somewhere between the two. There will be a fixed option as well as an adjustable. We’ve been told that only those who have mandatory obligations to satisfy (mortgage, other liens) will be allowed to obtain the fixed. Borrowers will now also only be allowed to us 60% of the loan amount they qualify for in the first year unless it is to pay off a mandatory obligation. Borrower with mandatory obligations over 60% will be allowed to go above it but then only be allowed to take another 10% for cash out purposes and be charged a larger mortgage insurance premium for having to go above the 60% threshold. So the days of a borrower with no mortgage or a very small mortgage having the ability to take all of the cash out in the first year to make investments etc will essentially be over October 1st 2013.
After the beginning of 2014, most likely around February FHA will also implement an escrow set aside to pay property taxes and home owners insurance for those who have demonstrated that they have had issues paying on time in the past. There will also be a financial assessment put into place that will make for a more income and credit history driven underwriting process for reverse mortgages. In the past and right now you can obtain a reverse mortgage simply by being 62 or older, living in your own home and having a good equity position. Sometime early next year underwriters will look more closely at credit history, score, income and assets in order to qualify borrowers. These changes and the limits on the amount seniors can borrower will greatly affect many who want the loan and may make it unattainable for many who could get it right now. The best way to avoid this is to get counseled today and get an application in before the end of September. All those who have an FHA case number assigned before October 1st will not be affected by these changes. Call a loan officer today to find out how to get started before it’s too late.