Update: 7/28/2013
Seniors with fixed-rate mortgages (FRMs) will be limited to the option of taking out a “saver” reverse mortgage, which allows homeowners to withdraw 10-15% less from their home than the “standard” program allows. For example, under the “standard” program, a homeowner with a home worth $200,000 was able to draw out about $130,000. In the “saver” program, the same homeowner can draw out roughly $109,000.
This is part of an effort to cut the FHA’s losses and avoid a bailout. The FHA-supported HECM program caused the FHA a loss of $2.8 billion in 2011. This loss was partly due to foreclosures completed on homes encumbered by FHA-insured reverse mortgages, which, at the time of foreclosure, had substantially less equity than what was originally covered by the HECM program.
Related article:
The FHA is also considering more rules to govern which reverse mortgages they will insure.
first tuesday insight
Regulation over reverse mortgages — long-needed to protect the hard-won household wealth of our seasoned citizens — is finally on the way. It has been years of regressive government to lender delight, as ever more people retire and predatory lending becomes more rampant among seniors.
Fortunately, reverse mortgages are already receiving more regulation. The Consumer Financial Protection Bureau (CFPB) will soon be issuing new rules on reverse mortgages. And in California, a new law requires reverse mortgage counseling to be in person. In-person counseling is essential to explore the many factors which go into deciding whether or not your client ought to take out a reverse mortgage.
Related article:
Other reasons why reverse mortgages are to be avoided?
Reverse mortgages keep large homes off the market that ought to be sold as a matter of the proper allocation of our national wealth. Retired individuals have little use for the size or location of the home they now live in, with exceptions. They need to relocate, mostly, and a reverse mortgage imprisons them in generally oversized and underused housing until total disability or death.
Worse, reverse mortgages are a lot like adjustable rate mortgages (ARMs): complex financial instruments intended for sophisticated individuals, used to prey on the financially uninformed. Lenders do not understand people; their primary concern is money.
Being able to borrow is not the proper yardstick for anyone who is retired. Besides, the FHA is for first-time buyers. For the retired: sell, downsize to a senior-friendly location very close to daily needs and bank the cash difference in prices.
Unemployment contributes to this improper borrowing. Lots of new jobs will help end the need for income from a mortgage. Arguably, income from a reverse mortgage for a few years until social security or other income is available might be a prudent financial plan. Then seniors can sell and relocate, shedding the mortgage in the process. A crisis calls for some flexibility, if you are to prevail.
Alternatives to a reverse mortgage include:
- selling the home and down scaling to a smaller residence or condominium; or
- refinancing if mortgage payments are an issue.
Re: The Nation’s Housing: FHA tightens up on reverse mortgages from The Washington Post
I agree with one thing: Lenders do not understand people; their primary concern is money.
I agree with all of the above. The reverse mortgage is a way for seniors to retain what they’ve earned and worked for. I live in a relatively new home in an “active adult” community. I gave up the big house and pool last year. I plan to use the reverse mortgage to allow me to retain my new home and retire in a couple of years.
Due to the “down turn” my retirement savings are not what they once were, and I surely can’t live on Social Security and make house payments. I’ve worked for nearly fifty years and I don’t want any of those new jobs. I want to enjoy the time I have left.
Max, you are a bit angrier than i am but not by much. This article starts out as a straight “news” article; then half way through, without notice, becomes an editorial voicing “reasons” (make that political/economic theory/opinion!) why reverse mortgages ARE to be avoided. Not sure of the author’s credentials to be promoting these opinions, but even if, such opinions should not be contained in a purported news story titled “FHA nixes popular reverse mortgage…” Even that is not true. The program wasn’t nixed; some of the terms were modified. the phrase “ought to be sold as a matter of the proper allocation of our national wealth.” sounds like it was copied from a Marxist text book. Then, “Retired individuals have little use for the size or location of the home they now live in…” Did the author think about the retired people (i know several) who still have adult kids living with them, or who are raising their grand kids? And, is is really anyone’s’ business how big my house is, and if i NEED it? Really, this is just so over the top that i wonder if the author slipped this in on purpose as a joke just to see if anyone read all the way to the end. Max i agree with everything else you had to say. Carrie, you need a refresher class in journalism.
I concur with Max Perry’s comments above. The Reverse Mortgage was devised to allow Seniors to remain in their home after retirment when they perhaps otherwise would be unable to continue making a house payment.
Obviously they are not for the High Income earners with large pensions. They were designed to afor a good reason and should be allowed to remain.
Max Perry is correct.Shouldn’t seniors and not the government decide what is best for them?For FHA to exit the market because it lost money in a down market is akin to all lenders deciding not to make secured loans anymore because they lost money in this recession.Reverse Mortgages do not imprison seniors.Most get one in order to improve their lives with less financial worriesThey can sell and move whenever they want .While less costly alternatives are often better for seniors,if a Reverse Mortgage is what they decide is best for them they deserve the same freedom to make their own decisions as you and I.I am a 70 yr old Real Estate Broker who does not arrange Reverse Mortgages.
Sure, kick the seniors under the bus, kick them out of the big house they love and have improved with their own sweat over the years because the national wealth demands it. They don’t need to stay in their home and they should go to a glove box condo because they are old and should just free up their overly large house that holds a lot of memories, in order to benefit the broker, the title insurer, the inspectors, the attorneys, the plumber, the home remodeler, Home Depot and all the others that get their piece of the action when a home sells, to say nothing of a new tax basis. Is that the national wealth you’re talking about? Make it impossible for the seniors to stay in their own home. Put them in a facility so that the vultures can flock to pick at the pieces, and then pull the plug as soon as the Obama death panel decides. I for one am protected by S&W so don’t try to put me in a condo. I will retire my reverse mortgage as soon as I get one of those new jobs you’re talking about down the street at McDonald’s. Affectionately yours, and as mad as hell at your ridiculous piece that forgets that a house is also a home.