FHA and HUD, have successfully gotten a law enacted (The Reverse Mortgage Stability Act) to give the agencies broad, sweeping authority to make adjustments to the Home Equity Conversion Mortgage (HECM) program. The changes are needed in order to assure the continued viability of the FHA insurance fund that protects both borrowers and lenders.
Also, an attempt is being made to reduce the amount of property tax and insurance defaults occurring throughout the program. HUD published these changes in two new Mortgagee Letters.
Beginning October 1, 2013 HUD has cut the size of the reverse mortgage one can borrow, by eight to 15 percent which will mean the percentage of money available for a reverse mortgage will be in the area of 35 to 42 percent of the entire value of the property. Also, HUD plans on limiting what percentage of the principle any one person is able to withdraw at the closing and during the first year he or she has the loan.
Beginning on January 1, 2014, there will be a new set of underwriting criteria that will examine a potential borrower’s income as it relates to his or her ability to pay real estate taxes and homeowner’s insurance. A potential borrower’s recent track record paying his or her taxes and insurance will be especially important when determining eligibility. Lenders will be able to set up tax and insurance “set-asides” to make sure the taxes and insurance continue to be paid. Therefore, the percentage amount available for a reverse mortgage will be further reduced.
Ms. MacDonald’s practice is limited to Estate Planning, Probate, Elder Law and Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite B-124 in Valencia, California. She can be reached at 661-294-6464.