We’ve heard the rumblings for some time, and now it’s upon us.  The Home Equity Conversion Mortgage, or reverse mortgage, will cut its benefits to seniors at the end of this month.

These changes reduce the maximum benefit available from these loans by as much as 15%, and limit the amount that can be taken at the close of escrow. 

And soon, new reverse mortgage applicants will be screened to be certain they have the means to make property tax and homeowners insurance payments going forward.  This breaks with the tradition of reverse mortgage having no qualifications except age and equity. 

Why are these changes taking place?  Here’s what the U S Department of Housing and Urban Development says:

“Since the 2009 housing and economic recession, the HECM portfolio has experienced major mortgagor demographic and behavioral changes that have contributed to additional risks to the Mutual Mortgage Insurance Fund. Some of the changes include shifting from a predominately adjustable interest rate mortgage (with mortgagors electing to receive payments over time using the line of credit or modified tenure/term payment options) to a fixed interest rate mortgage (where mortgagors draw down all funds at the time of loan closing); younger mortgagors with higher amounts of property indebtedness; and increasing property charge defaults. These and other factors have caused higher payouts of insurance claims.”

“An increasing number of tax and hazard insurance defaults by mortgagors have heightened the need for a financial assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions. Effective January 13, 2014, mortgagees must complete a financial assessment of all prospective mortgagors prior to loan approval and loan closing. The purpose of the financial assessment is to evaluate the mortgagors’ willingness and capacity to meet their financial obligations, and their ability to comply with the mortgage requirements. The financial assessment is also used to determine whether, and under what conditions, the prospective mortgagor meets FHA eligibility criteria.”

As a consumer, what does this mean to you?  If you or a loved one has been considering reverse mortgage but have not yet committed, either get on board right now or be prepared to face the new program with significantly less benefit.  Contact your mortgage advisor today to get started.

Tammy Engel is your local Mortgage Advisor, writing home loans for purchase, refinance, and reverse mortgage since 1990.  Contact her at 661/822-REAL for help with your home financing.