With all of the new changes to the FHA reverse mortgage program, people are wondering what to do or even if the product will be around much longer. People who apply now (after Sept 30th) will see a couple of changes I will outline below. The next changes to the program will come in the beginning of 2014. FHA received the ability to make changes to the program without congressional approval with the passing of the Reverse Mortgage Stabilization Act. That meant that they could now make changes as they saw fit in order to sure up the longevity of the reverse mortgage product. In the long run it may be a good thing and should help to keep the loan around but in the short term it will mean many people who previously qualified will no longer.
Immediate changes include an across the board cut to loan amounts of about 15%. So if you qualified for a loan amount of $300,000 on September 29th you now only qualify for about $255,000 after September 30th. Obviously that will limit the amount of people who qualify as more and more people are paying off a current mortgage and don’t have all of their equity. Another change is a limit to how much money can be utilized in the first year. Previously you would draw part of all of the money you qualified immediately, in the first 12 months or whenever and that is no longer the case. Now borrowers are only allowed to take 60% of the money they qualify for in the first year. After the first year they can access the rest of the money as they please. The only way to get around that rule is if your mandatory obligations are more than 60%. Mandatory obligations are things that need to be paid off in the loan like; current mortgage, fees involved with the reverse mortgage, federal liens etc. If your mandatory obligations are more than 60% you will be allowed to go over and can even collect an additional 10% of the funds for cash out needs. Those who draw less than 60% will be charged 0.5% in up front mortgage insurance. Those who go over 60% will be charged 2.5%. The previous maximum for the upfront mortgage insurance was 2.0% so that has gone up if you are one of those who needs to utilize more than 60% of the amount you qualify for to pay off mandatory obligations.
Changes that are coming in the New Year include a financial assessment and Set aside (Impound) accounts for property taxes and home owners insurance on case by case bases. The financial assessment will look at credit history to determine willingness to pay (if you have paid your bills in the past). They will also be checking to see if you have maintained your home owners insurance and property taxes over the last several years. If you have been found to pay those then you may be able to avoid set asides, if however you have demonstrated that you cannot be counted on to make the payment for taxes and insurance then the lender will hold back some of the cash out to pay them on your behalf. Credit and income requirements will be more lax on the reverse mortgage as compared to a traditional home loan though. The best way to see how all of these changes will affect you is to contact one of our loan officers today.