Making Sense of Reverse Mortgages Information you need to make a good decision!

December 2, 2013

Long Term fix?

Filed under: Uncategorized — Scott Larson @ 12:53 pm

Let’s hope so!  The reverse mortgage program had some changes happen on Sept 30, with more coming Jan 14 of next year.  A recent MarketWatch column highlighted some of the changes.

One of the biggest change is a lowering of the amount available to a senior.  The “standard” and “saver” programs are eliminated and one program will be available for everyone Per the market watch article

It will still depend largely on the age of the borrower, the value of the home, and the interest rate.  But under the new regulations, assuming an interest rate of 5%, a 72-year-old will be able to withdraw up to 57.5%, minus fees.  This compares to 67.7% of the home’s value using the standard and 55.4% using the saver.

While this will hurt some borrowers, this should make the program more sustainable in the long run.

The next major change is the Mortgage Insurance Premium or MIP.  This now goes to a two tiered system

A portion of the mortgage costs will now be based on the amount withdrawn.  Borrowers who take out more than 60% in the first year will have to pay a higher up-front mortgage insurance premium (2.5% of the appraised value of the property) than those who withdraw less than 60% (0.5% of the appraised value).  Previously, the upfront fees were 2% for standard reverse mortgages and 0.01% for savers.

This is designed to help make sure that borrowers do not take the entire amount available to them, reserving a portion of the costs to pay taxes and insurance.  This is the biggest issue threatening the  reverse mortgage industry with some estimates of tax and insurance defaults running as high as 10% of outstanding reverse mortgages.

The third change, coming in January begins a new chapter in the reverse mortgage world, qualifying.  This is not qualifying as you would normally think about it with a “standard” mortgage, but rather a residual calculation.

To qualify for a full loan, homeowners must have a certain level of monthly income left over after paying all expenses, including taxes and insurance.  For a single homeowner, this threshold level ranges from $529 to $589, depending on the region in which he lives.  If the borrower falls short of this amount, he will be required to make a cash set-aside, which will either be deducted from payments or charged to a line of credit.

As a loan officer, I want to be able to provide the maximum benefit available to a senior, to allow them to make the choices that help them.  But we do need to make sure the program is sustainable as well.

As the MarketWatch article concludes

We need this program to work well, because people are going to need the money.

For the full article, click here

 

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