HUD shores up fund to stop “bleeding”, supports HECM financial strength
New federal rules that took effect Oct. 2 will raise upfront costs for some homeowners seeking a reverse mortgage, and reduce maximum loan amounts for most, raising the question: Is a reverse mortgage still worth considering?
Most experts say yes, although the increasingly popular strategy of taking a reverse mortgage line of credit—known as a standby reverse mortgage—may become less useful because credit lines will now grow more slowly.
That type of reverse mortgage “is a much less appealing option moving forward,” says Jamie Hopkins, associate professor at the American College of Financial Services in Bryn Mawr, Pa.
A reverse mortgage is a federally backed loan against a home’s equity that requires no monthly payments and is available to homeowners 62 and older. Proceeds can be taken as a lump sum, monthly income for life or line of credit. Interest charges are added to the debt, which doesn’t have to be paid off until the borrower dies or no longer uses the property as a primary residence. As long as the borrower keeps up with taxes, insurance and maintenance, the lender cannot call the loan, and the lender can never recover more than the home fetches in a sale, even if the debt is larger, protecting the borrower’s other assets.
To protect lenders against loss, the federal government limits the initial loan amount and maintains an insurance fund with premiums paid by borrowers. The Department of Housing and Urban Development, which oversees the dominant reverse-mortgage program, has moved to shore up that fund.
The Gofinancial.net input to this news is that different borrowers will have different results, so wait until you get a HECM analysis to weigh in on HECM.
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