We reached the post Oct 2nd changes and we are all still standing. For those of you who don’t already know FHA/HUD implemented some changes to the reverse mortgage program that will have negative effects for many. One of the changes raised the upfront mortgage insurance premium for most borrowers, another lowered the annual mortgage insurance premium. The big change that will forever alter the reverse mortgage landscape is the one that changed the rate floor on the expected rate which was around 5% and lowed it to 3%. What this does is makes it so in order to get the most money out of the reverse you need to hit that rate floor or be lower. The rate floor is a combination of the margin (what the lender makes) and the index. In this case they are using a forecasting rate for the index which is the 10 year libor. Bottom line is that currently lenders don’t have margins low enough to get to the rate floor of 3%. So a person who takes out a reverse mortgage today versus before Oct 2nd could be getting around 20% less money.
It is important to review all of your options to see. Some lenders/brokers can sell lower margins than others. Either way it is a negative. The lower the margin the lower the back end on the loan and the lower the back end the less money the lender and loan officer are making which means less ability to waive closing costs. So the future of reverse looks like less money available to borrower and more cost. FHA said the change was needed to sure up the MMI fund which is where all FHA loans including reverse are drawn on. Predictions on the reverse are always up and down as far as the effect on the MMI fund.
In my opinion the Government would like to see the reverse mortgage done away with but they don’t want to be looked at as the bad guy so they are just trying to make the reverse mortgage look less attractive. People are always complaining about how little the reverse can do or that the fees are too high but you need to remember that they are actually more beneficial to the borrower than the Government. When the market turns and it will eventually the government will be left holding the bag as far as covering losses. The reverse is a non-recourse loan so people are not held accountable for being upside down at the close. The lender etc cannot come after heirs or the estate for anything more than the value of the home even if the loan amount has outpaced it. Best thing to do is to call and find out what the reverse can still do for you. Thank you for reading. I will be posting a video to go over the same info.