Possible Reverse Mortgage guideline changes coming in the near future. Today, nearly 10% of reverse mortgages are in default and this can be an easy fix. Nearly all of the reverse mortgages that are in default because those homeowners have not paid their property taxes. The borrowers responsibilities when taking out this unique loan are to continue to pay all property taxes and homeowners insurance on time, maintenance upkeep of the property, and the home to be the primary residence of the borrower.Typically, the reverse mortgage borrower does all three of these, but a select few are still having a hard time keeping up with the semi-annual or annual property tax bill. Some property tax bills can be a big expense for retired seniors and can run anywhere between $1,000 and on up to $10,000 a year, but possibly more. When this bill comes the homeowners did not set enough aside each month, so they end up not paying it and the lender has to be sent in and try to get them caught up. If not then the lender starts the foreclosures process. This is exactly how the process is with a traditional mortgage as well. The difference between the reverse mortgage and a traditional mortgage is the escrow account. With a traditional mortgage, typically the lender sets up an escrow account and each month when the borrower pays their mortgage payment, part of it goes to that escrow account for property taxes and homeowners insurance. More than 80% of loans have an escrow account tied to them. But with a reverse mortgage, since the borrower does not make monthly payments to the lender, no escrow account is set up and the borrower is fully responsible for making the property tax and insurance payments on their own.
The Federal Housing Administration (FHA) is in talks with congress to change some of the guidelines with the reverse mortgage program, which should strengthen it. The first change would be to set up an escrow set aside that would only be used if the borrower fails to meet the obligations of paying the property taxes and insurance on their own. Essentially, in order to determine if a borrower would be a risk at defaulting on their property taxes and insurance would be a credit assessment. The assessment would only be used for the risk of borrower in that regard and not to whether the borrower can qualify for a reverse mortgage. The other major change would be to reduce the upfront lump sum a borrower could receive by 10 – 15%. And the max a borrower could receive is 60% of the value of the home or if a mortgage is still owed on the home, the balance of that, whichever is greater.
FHA and Congress want to make sure that the reverse mortgage product is a long term investment for the American public because as the population continues to live longer, this program will help sustain the senior community.
Reverse Mortgage Guideline Changes Coming
![Reverse Mortgage Guideline Changes Coming]()
Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5