Issue 36.13
With all of the changes coming to the Reverse Mortgage, what can I really expect? Am, I going to be able to use it to buy a home and or eliminate a mortgage payment with the Changes that HUD is making today?
I have been saying since the first of the year that this program and its changes will be much more conservative moving forward than it is today. For all of our senior clients that are looking at reverse options, you certainly need to understand that the loan options today will be reduced in the next coming months. Therefore, if you are considering a reverse loan or a reverse purchase on a new home it really makes more sense today than the options will provide in the future.
We, as the National Reverse Mortgage Lenders Association, have been getting a lot of questions from members regarding the forthcoming changes to the HECM program, now that the Reverse Mortgage Stabilization act has been signed into law. While many details remain to be ironed out, we thought we would provide the following update. The gaps in what we know will be filled once HUD issues a Mortgagee Letter implementing the changes if not sooner. Our understanding is that the M.L. will be out prior to the end of this month and effective as of October 1st.
So, here we go! One thing is clear. The Reverse loan will not be as we know it today. If you are going to buy a home, it will certainly cost you more of a down payment if you wait over the next couple of months than it does today. And, secondly, if you want to use the reverse loan to cash out or pay off a mortgage payment on the home you’re currently in, then we may not be able to do so immediately.
HUD’s analysis of the HECM loan program‘s history has revealed that the risk in loans is directly proportional to the size of the upfront Draw. Here are the changes that we expect according to our National Reverse Mortgage Lender’s Association:
1. FHA will be consolidating the two current versions of HECM products, the Standard and saver into one new product that is somewhere in the middle most likely. That means that a client will have to have more equity in his home to eliminate their mortgage payment than today.
2. It also means that the home buyer will have to put more down on a home they are purchasing so that they will have enough equity to begin the loan and have no mortgage payments for him and his wife.
3. Finally, if a homeowner wants a simple cash out on a reverse mortgage, he will be limited to what he can take during that initial draw and the remainder will be or could be taken a year later for example.
Where you see these changes going is simply more conservative approaches on HUD’s thought process in order to limit long term exposure in the reverse mortgage programs.
In addition to the above, Financial Assessment will be implemented at a later date, probably in January of 2014.
Tax and Insurance Set – Asides will be implemented in conjunction with Financial Assessment.
These changes are designed to stabilize the HECM program (as indicated by the name of the Act) by addressing the factors that have led to problematic loans and respond to criticisms lodged by the program’s opponents in Congress. While a period of adjustment lies ahead, once we get through it, I am confident that we will have a financially sound program that will find acceptance among our senior clients.
Brandon Hansen is a Senior Mortgage Banker, Registered Investment Adviser Representative for Cherry Creek Mortgage / National Advisor’s Network. He can be contacted at 435 668 2840 / 435 525 2266.