Fall is Here ! Sonoma County, CA
Fall is here and the dust has settled on the 2013 HUD required changes to the reverse mortgage program, what just happened? Is it a good thing, a bad thing, or a little of both? Let’s take a look at some of the changes and the intended effect on the reverse mortgage program.
HUD (Department of Housing and Urban Development), which governs the FHA insured reverse mortgage program, instituted these changes to fiscally strengthen the program by allowing less money to be borrowed upfront and to the lessen the chance of default on the payment by the borrower on property taxes and insurance.
1) First-year money draw limit. A homeowner may now withdraw only up to 60% of the eligible sum during the first year unless they have a mandatory obligation, such as a mortgage, which if that loan payoff forces the initial draw above 60%, then in many cases they may draw an additional 10% that first year of the loan. Depending on the reverse mortgage program selected, (line of credit) the remaining funds will be eligible after 1 year has passed. This is designed to be a good thing. Limiting the amount of money taken out at the loan’s close is predicted by HUD to reduce the number of defaults on property taxes and insurance because a borrower has spent all their proceeds. This default rate for unpaid property taxes and/or had been climbing and HUD hopes to reduce this trend.
2) Reduced Loan Costs vs. Increased Loan Costs: Despite all the news and television headlines designed in my opinion to “inflame”, the cost of the reverse mortgage can now be less than it had been previously and it can now also cost more. If a borrower elects to draw up to 60% or less of the available funds at the close of the loan the up front costs are reduced for the required FHA mortgage insurance. If the borrower draws over 60% of the available funds at the close of the loan the upfront cost of the FHA mandatory insurance has gone up. Each borrowers individual scenario must be carefully analyzed by a licensed loan professional.
I produce INDIVIDUAL personalized loan scenarios thus I am not going to throw out a bunch of figures in this forum, but, having said that, generally speaking for more fee info see the next item for a general fee discussion:
3) Fee changes. Previously, the upfront fee for the mandatory FHA mortgage insurance on a standard reverse mortgage was approximately 2% of the property’s appraised value with a cap at the maximum program recognized home value of $625,500, (these differ a bit for a “jumbo” reverse loan, call me for a quote on that). With the new HUD rules, the upfront fee will be 0.5% of the home’s appraised value for those who take at the close of the loan under 60% of the available proceeds, if more is taken at the close of the loan due to mandatory obligation payoffs (such as an existing home loan) then the borrower pays of a 2.5% of the home’s appraised value for the upfront mandatory FHA insurance premium. This is HUD’s incentive for borrowers to draw at close of the loan under 60% of available funds therefore keeping funds in reserve for property taxes and insurance. Sure, at day 366 following the close of the loan borrowers can access ALL the remaining funds (line of credit program only), and therefore potentially be unable to pay for property taxes and insurance later, so what about that? Well, see item 4 below:
4) IMPORTANT: Set asides for property taxes and insurance and financial assessment are coming: THIS IS COMING BY MID TO LATE JANUARY 2014 on reverse mortgage loans that are not started in 2013. In some cases HUD is going to require these types of set asides and in ALL CASES is going to require a financial assessment. If you would like to avoid these impending changes, NOW IS THE TIME to apply for your reverse mortgage. Sigh, I wish I could say the trend were different, by waiting it will get easier and you will qualify for more money, but this is not the trend currently. If you start your reverse mortgage now I promise to be minimally annoying during the holidays, here’s a plus: your house will look great for the 1 hour appraisal, so why not get it started now and avoid property tax set asides and a financial assessment? Give me a call, it is my mission in life to give you the best personalized service and aggressive loan cost pricing.
Shawna McDonald, Loan Officer/Real Estate Broker
Specializing in Reverse Mortgages
NMLS #271335 BRE #00585530
The opinions in this blog are the author’s sole opinion.