On August 29th HUD announced significant changes to the reverse mortgage program that will take effect on October 2nd, 2017. Normally, large changes like this are announced much further ahead of time allowing for public comment, leaders in the industry to get involved and for lenders to get prepared for the changes. Not so with this change. This was a major bombshell and the industry is scrambling to make adjustments, update software, figure out pricing etc.
There are three significant changes:
Reduction In Amount People Can Borrow: The outcome from this change from what I have been able to calculate is that people will be able to borrow about 10% +/- less than the current guidelines. While that may not sound like much, it is 10% of their homes value. A person with a $300,000 home will be able to borrow about $30,000 less based on current guidelines. Actual limits will be based on current interest rates and age of borrowers.
Change In Initial Mortgage Insurance Premium: Currently the upfront mortgage insurance fee to FHA is either .5% or 2.5% of the Maximum Claim Amount, which is determined by initial loan balances. Starting in October, the fee will be 2% of the Maximum Claim Amount. The Maximum Claim Amount is the lowest of the appraised value, the sale price purchase, or the FHA mortgage loan limit.
Annual Mortgage Insurance: This is currently 1.25% annually but calculated on a monthly basis. This will be dropping to .50%.
Why Is This Happening? Losses from reverse mortgages are putting a strain on FHA’s mutual mortgage insurance fund. There has only been one bail out from Congress which happened in 2013 and which HUD states were due mainly to losses from reverse mortgages. HUD also stated that it “would require an appropriation from Congress for FHA to endorse new reverse mortgages in FY 2018.”
The Benefits to the Changes? The first and most important is that the reverse mortgage program will continue to exist and be available to millions of senior homeowners across the nation. Secondly, with the lowered loan limits and lower annual mortgage insurance, it increases the likelihood of retaining more equity over time should the homeowner need or want to sell the home in the future as well as leaving more equity for heirs.
Should You Still Consider A Reverse Mortgage? The short and simple answer is yes. As a proponent of reverse mortgages, I would encourage all those 62 and older to take the time to educate themselves about reverse mortgages in Oregon and explore them as an option during retirement. In my experience, the reverse mortgage is used for two primary reasons; it is either used to combat financial problems that are faced during retirement or it is used as part of an overall retirement plan. By taking the time to educate yourself about reverse mortgages, you can determine if it makes senses to get one now, sometime in the future, or not at all unless your circumstances change.
Call me today for a free custom tailored reverse mortgage analysis at 541-773-3131. Or give me a call with any questions you may have about the loan. I am happy to help in any way I can.
I look forward to hearing from you.
Matt Allen MLO-254296
Sr. Reverse Mortgage Banker
Phone: (541) 773-3131
Toll Free: (888) 382-9590
Fax: (541) 773-4981
Credit on approval. Terms subject to change without notice. Not a
commitment to lend. NMLS 1477/WA-CL 1477. Equal Housing Lender.
Content not approved or endorsed by HUD or FHA.