Reverse mortgage has been a common option by individuals 62 years and older, cash poor but still wants to live in their house. And if you’re one of these individuals applying for a reverse mortgage soon, you have to know that the regulations have become tighter. This is actually a good thing according to most financial advisers.
Why Was The Program Changed?
The program was basically changed because like other types of loans, reverse mortgage also has its risks. A lot of the seniors lost their homes to foreclosure for two common reasons: first, the borrow no longer uses the home as its principal residence and second, the borrower failed to meet the mortgage’s obligations.
The first reason usually occurs when only one spouse was listed on the deed and that person was moved into a nursing home due to illness or died. On the other hand, the second reason takes places because the borrower got too much equity from their property, spent all the cash, weren’t able to maintain the property, or weren’t able to pay up the insurance, which are all obligations of the borrowers when they get a reverse mortgage.
But aside from these two reasons, Consumer Financial Protection Bureau Director Richard Cordray said that their agency found out that senior citizens don’t completely understand the loan terms exacerbated by false and deceptive advertisements and mailings.
“We will work with our partners at the federal, state and local level to root out these kinds of scams,” Cordray said.
How To Lessen Risks On Reverse Mortgage?
According to The Wall Street Journal’s Sunday edition report made by Tom Lauricella, the federal government has tightened the guidelines on reverse mortgage so borrowers can avoid committing such mistakes thus, decreasing the risks related tot his.
These changes are all positive,” Encore contributor and the director of the Center for Retirement Research at Boston College Alicia Munnell said.
The new guidelines include the following:
- The Department of Housing and Urban Development in 2013 altered the rules setting a limit on most loans, especially during the first year, to 60% of the available equity in the home based on the FHA standards. Borrowers are allowed to use the remaining equity in their home in subsequent years.
- Lenders are required to assess first the capability of the borrowers to meet their financial obligations on the property. Depending on the assessment, especially if the lender sees you a risk, the homeowner could be required to set aside money from the proceeds to pay up for the property taxes and insurance.
Lori Trawinski, a policy adviser who specializes in reverse mortgages at AARP said, “The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations.”
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