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Reverse mortgages under review

By Judy Martel · Bankrate.com
Thursday, June 20, 2013
Posted: 9 am ET

Citing a disproportionate number of liabilities from borrowers in its reverse mortgage business, the Federal Housing Authority wants to make some quick changes. Legislation allowing that has passed its first hurdle in Congress.

The House of Representatives has passed the "Reverse Mortgage Stabilization Act," authorizing the FHA to immediately implement new requirements for what's officially called a "home equity conversion mortgage." Proposed changes to the reverse mortgage program include new reviews of borrowers' budgets, the establishment of escrow accounts for tax and insurance payments, and limits on the amount of upfront lump sums.

Reverse mortgages have been an option for homeowners who are 62 or older and want to turn their home equity into a fixed income in retirement. The lender pays a monthly payment for as long as the homeowner lives in the house or for a specified time period. The loans generally come with higher interest rates, fees and closing costs than traditional mortgages, making them an expensive option in many cases.

FHA hopes to avoid taxpayer bailout

The proposed changes to the reverse mortgage program are part of an effort by the FHA to bolster its mutual mortgage insurance fund, which was depleted during the housing crisis. The concern is that without changes, the FHA will have to ask the U.S. Treasury for taxpayer money to make up the losses.

The legislation now goes to the Senate. Peter Bell, president of the National Reverse Mortgage Lenders Association, told a Senate committee that the proposed overhaul would increase protections for consumers and improve the program's financial stability. In a statement, Bell noted that preserving the reverse mortgage program will enable it to "remain a useful tool for elderly homeowners while minimizing risks to the taxpayers."

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12 Comments
jennifer
April 22, 2014 at 12:51 pm

these reverse mortgages are the worst thing that has ever happened to our elderly people. they should when the parents dies have to come to some kind of deal with the children. their should not be these out landish charges tacked on. and they do not check to see if these elderly people have alzheimers or anything they just go on what one of their siblings says. we all need to get something started to stop these reverse mortgage companies.

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