On August 25, 2013, the
Wall Street Journal reported that the Federal Housing Administration (FHA) has been given the authority to make changes to the rules governing reverse mortgages, with some changes anticipated as early as October 1, 2013. A reverse mortgage allows certain homeowners to convert some of the equity they have built up in their homes into cash. The mortgage is repaid, with interest, when the house is sold or the homeowner either moves or dies.
According to the article, the upcoming changes could result in fewer borrowers qualifying for these types of loans and a decline in the maximum loan amounts. The anticipated changes include:
- merging the two types of reverse mortgages available today,
- setting new limits on the amounts borrowers are allowed to take relative to the appraised value of their homes,
- increasing mortgage fees, and
- requiring lenders to assess a borrower’s ability to pay property taxes and homeowners insurance premiums.
FHA expects these changes to reduce the number of defaults on reverse mortgages, which, according to the article, have risen to as high as 10%.
