According to a new report that was issued by the Department of Housing and Urban development (HUD), the newest reverse mortgage updates on the rules and laws have worked out for the better and to the positive benefit of both borrowers and lenders.
New changes to the Home Equity Conversion Mortgage program are intended to accomplish several things. One, they are designed to assure that foreclosures and defaults are limited. Two, they are also designed to prevent lender abuse. And three, they help assure that borrowers can actually afford to pay upkeep, home insurance and property taxes on these loans, which are not secured on the basis of credit or income.
The changes mandate that borrowers demonstrate they have the financial ability to maintain the home and to pay annual property taxes and home insurance. If they are not able to provide proof of this ability, lenders are not allowed to approve the loans.
"We are very pleased," commented Karin Hill, senior policy advisor for HUD's Office of Single Family Housing. "[The market] has stayed very stable and the changes resulted in the outcome we had hoped for."
Namely, the draw from the loans by borrowers has decreased since the new rules took effect. The HUD noted that from 2015 to 2016 borrowers drew as much as 60% less 63% of the time. This lesser draw means reduced risk to both lenders and borrowers, and assures that, in most cases, there's something to be passed on to heirs from the estate at a later time.
"This has had a very positive impact on the risk profile [reverse mortgages]," Hill added.
Reverse mortgages are a special type of home loan that is offered to homeowners age 62 or older. They require that you have substantial equity in your home and that you are able to pay annual property taxes, home insurance and general upkeep. There are no income or credit requirements outside of these rules. Other stipulations include that the home remains as your primary residence and that you seek third-party credit counseling before you take out the loan.
With the new rules in place, the industry at whole is moving forwards in a positive direction that helps assure these loans are not abused.