New Rules for Reverse Mortgages Go In Effect September 30

If you are thinking about getting a reverse mortgage, you had better act quickly. I have written previously about the potential dangers of a reverse mortgage. http://notjustforboomers.blogspot.com/2012/10/boomers-beware-reverse-mortgages-can-be.html
Reverse mortgages allow homeowners over the age of 62 to tap their home equity without having to make any payments on the amount borrowed. The lenders get their money back when the house is sold. The Federal Housing Administration (FHA), which insures most reverse mortgages, is issuing new rules, effective September 30, 2013 that may make it difficult for borrowers to get as much value from their home's equity as they were able to do previously..

The new rules will limit the available equity by about 15%.  In other words, in taking money from a reverse mortgage, the homeowner will not be able to tap as much of the equity as before. The new FHA rules also limit the amount of money that can be taken out during the first year of the mortgage.

Other key changes are:  (1) the price of the mortgage will now be based upon the amount withdraw; (2) lenders will be required to make a financial assessment of the borrower to make sure he or she can make the necessary insurance and tax payments; and (3) if the lender determines you may not be able to pay those premiums or taxes, the borrower may be required to set aside money to insure those payments are made.

As can be seen, these new rules change the entire landscape for reverse mortgages. If you are still interested in pursuing a reverse mortgage, make sure you investigate and understand these changes.

Boomers Beware: Reverse Mortgages Can Be a Disaster

We have all seen the ads on television where celebrity spokesmen tout the benefits of reverse mortgages for those individuals who are 62 or older and own their homes. These mortgages are supposedly free money as they allow the owner to borrow against the value of their home and not have to pay the money back until they move or die. The spokesmen tell us that the money can be used for vacations and other fun things.  What they do not tell the viewer is that there are fees associated with those mortgages which if not paid can lead to eviction.

The New York Times today reports that the new Consumer Financial Protection Bureau is preparing new rules to help regulate those mortgages.  According to the Times, there are more than 750,000 such loans outstanding.  See "Loan Lifeline for Retirees is Taking Toll," www.nytimes.com.

If you have a reverse mortgage now or are considering obtaining one, take a look at this article as soon as possible. And remember, "there is no such thing as a free lunch."
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