In the last few decades, Reverse Mortgages have gotten lots of attention (positive and negative) and gone through a number of regulatory changes. I recently read an interesting article in the NAELA News (National Academy of Elder Law Attorneys) by Michael L. Banner that outlined HUD’s mandatory changes to the Reverse Mortgage. (HUD = U.S. Department of Housing and Urban Development). Mr. Banner describes the changes as “far-reaching improvements,” and continues to recommend the new Reverse Mortgage for some seniors as part of their overall financial plan. Here’s a link to his recent article.
In short, there used to be two types of HECM’s (Home Equity Conversion Mortgage, or “Reverse Mortgage”) – one was the traditional RM and one was the newer HECM Saver. These two types have been eliminated, effective September 30, 2013, and a new type has replaced them, through the Reverse Mortgage Stabilization Act of 2013. The changes seem to be a combination of corrective measures (solving a deficit problem for HUD’s Mortgage Insurance Premium Fund, caused in large part by failed RM’s) and protective measures (for the borrowers who fail to budget for future property expenditures). The new RM has some familiar features, but the differences would be considered significant to many. If you’re thinking about a Reverse Mortgage and you’ve already done some research, you may be interested to hear about the changes outlined in the article:
- Lower Principal Limit (effective September 30, 2013)
This limits the amount of funds available to the borrower upon securing the RM. Now, when the loan is originated, there is a 70% limit on the amount the borrower can access in one lump sum, and that amount is available only in certain situations. This limit is accompanied by an increase in mortgage insurance premiums. There is a reward for not accessing the entire available amount at closing – a lowering of those mortgage insurance premiums.
- Borrower Financial Assessment (effective January 13, 2014)
For loans originated after January 13, 2014, a financial assessment will be required of all borrowers.
- Safeguards on Cash Distributions (effective January 13, 2014)
Based on the financial assessment, borrowers will be required to reserve funds for future property expenses, such as taxes and insurance, for example.
- (No changes on avoidance of principal and interest payments if borrower resides in home)
For those who are interested, here’s another article outlining the HUD changes Mr. Banner is talking about in his article. It will also link you to official HUD publications on the subject.
Reverse Mortgages may be an important tool in a financial plan, but they are not the answer for everyone. If you think you may benefit by a RM, talk to your financial advisor and estate planning professionals and ask for assistance in considering this option.This blog is written by Bridget-Michaele Reischl, Attorney DECORO LAW OFFICE, PLLC www.decorolaw.com