There used to be just two contants in life, “Death” and “Taxes”. We can now safely add a third, “Change”. And the question is are the changes to reverse mortgages good or bad?
Since almost all reverse mortgages are insured with Housing and Urban Development (HUD) through the Federal Housing Administration (FHA) any changes made by HUD/FHA are important. The latest changes to be implemented April 27th are extremely significant.
For the first time ever, there will now be financial assesments on each person trying to qualify for a reverse mortgage. It will include taking a look at both credit and income. This is a huge change to the way borrowers were approved before.
If you have good credit and sufficient income to cover your expenses with enough residual income to surivive on, then qualifying for a reverse mortgage will be easy. However, without enough monthly income and or bad credit qualifying for a reverse could be a problem.
Why is HUD doing this when a reverse mortgage has no monthly payments? It turns out that in about 10% of all reverse loans made, folks did not have enough money to pay their property taxes and homeowner insurance. Just as with regular “forward” loans, not paying property taxes and insurance creates a default in the loan agreement and that could mean foreclosure.
On one hand, making sure potential reverse mortgage borrowers have enough income to live in their homes for a long time is a good idea. Though people that do not have good credit but have enough residual income, may not be able to get a reverse mortgage, even if they have been paying property taxes and insurance all along – maybe not such a good idea.
These changes by HUD follow the golden rule: “He/She who has the gold makes the rules” What do you think? Are these reverse mortgage changes good or bad? I’d love to hear your comments.