HUD to Make Reverse Mortgages Tougher

September 1, 2017

The Department of Housing and Urban Development says it’s planning to raise premiums and tighten loan limits for seniors who use reverse mortgages, announcing the changes this week in a letter to lenders, The Wall Street Journal reports.

“Given the losses we’re seeing in the [reverse mortgage] program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” said HUD Secretary Ben Carson.

The changes would not impact borrowers who already have taken out a reverse mortgage but will apply to borrowers who take out new loans going forward. Reverse mortgages allow seniors to take out a loan against the value of their home. When a borrower moves or dies, the proceeds of the home’s sale go toward repaying the loan.

New borrowers to the program will pay 2 percent of the amount of the home’s value upfront, and then 0.5 percent annually over the course of the loan. They also will face higher premiums upfront but will pay lower premiums over the life of the loan. Currently, borrowers pay 0.5 percent upfront and 1.25 percent annually over the remainder of the loan.

The reverse mortgage program has proven costly to the government in recent years. Federal officials say the program is placing a heavy burden on the reverse fund, and within the next couple of years, the Federal Housing Administration would require money from Congress to keep it operating. The Journal reports that the costs are hampering HUD’s ability to lower premiums on forward mortgages.

Advocates say reverse mortgages are a critical source of funds for many seniors. “Being able to survive retirement when you don’t necessarily have a large 401(k)—that creates the real risk of just being able to pay the bills and eat food and stay in a home,” David Stevens, president of the Mortgage Bankers Association, told the Journal.

Source: “Trump Administration Plans New Restrictions on Reverse Mortgages,” The Wall Street Journal (Aug. 29, 2017) [Log-in required.]