New legislation may restrict reverse mortgages
Currently, if you’re over 62 and want a reverse mortgage there are very few qualifications needed. Other than being over 62, you must own the property outright or have considerable equity and live in the home as your primary residence. As long as you’re not delinquent on any federal debt you pretty much qualify (1). However, if current legislation takes place this is about to change.
The Department of Housing and Urban Development’s Federal Housing Administration (FHA) is going to take drastic measures to these loan programs in the next few months. As a direct result of declining home prices, this federal program took a big hit; 10% of borrowers are in default because they couldn’t pay their property taxes and homeowners insurance. Recently the FHA eliminated one of its most popular loan programs. This program allowed homeowners to withdraw the maximum amount in a lump sum payment. (3)
In addition to the elimination of this loan, the FHA has raised its fees and reduced the amount of money you can borrow. In the future, the FHA wants borrowers to have a financial assessment to determine if they can afford to pay their bills as well as their taxes and homeowners insurance. They may factor credit scores into the equation. At risk individuals may be required to have their homeowners and taxes payments put into an escrow account. The FHA would also like to put a cap on the lending amount. However in order to do this it requires approval from the Senate. (3)
The main reason people tap their home equity is because they are in financial distress. Some experts feel that by imposing restrictions you are eliminating the people you are trying to help. (3)
As you may recall we discussed the pros and cons in a previous blog post. One of the concerns with reverse mortgages was eviction due to default or an extended hospital stay. Another concern was the expense, the fees are much higher than traditional mortgages and they are only going to get higher in the future. (2)(3)
Depending upon your financial situation, you may have other less costly options available to you. If you’re looking to utilize the money to pay off debt, make home repairs or pay medical bills you should consider all your options. One such option is sell a portion of your future payments from an illiquid asset such as structured settlement, annuity, life insurance policy, land contracts, mortgage notes, cell tower leases, billboard lease agreements, lottery winnings or royalties for a cash lump sum.
When you sell your payments you do not have to pay the money back because it isn’t a loan. There is no defaulting and no homeownership requirements. Typically these transactions are far less costly than reverse mortgages, credit cards and other high-cost loans.
If you would like to know more about how you can sell some of your future payments for a cash lump sum, call CBC Settlement Funding now at 877-386-3377
Sources:
- http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou
- http://www.cbcsettlementfunding.com/the-pros-and-cons-of-reverse-mortgages/
- http://www.nytimes.com/2013/07/13/your-money/rules-for-reverse-mortgages-may-become-more-restrictive.html