Jun 26, 2015

Good reverse mortgage news, but caution still advised

In my September 2014 post I told you about a change in HECM reverse mortgage regulations. That change eliminated the requirement that the non-borrower spouse pay the loan in full when the borrower dies. The new rule eliminated the threat of foreclosure for surviving non-borrower spouses, provided they continue to pay required tax and insurance on the property. 

Unfortunately, there was a BIG fly in the ointment: The new rule applied only to reverse mortgages assigned case numbers on or after August 4, 2014. That still left many non-borrower spouses at risk of being thrown out of their homes. To remedy that situation, HUD has now expanded the new policy to include reverse mortgages initiated even before August 4, 2014. You can read the new rule here.

This new ruling helps revamp the much-troubled reverse mortgage industry, as do the stricter eligibility critera for HECM loans introduced earlier this year. But caution is still in order. Beneficial under the right circumstances, taking out a reverse mortgage can wreck your financial security if you don't know all the facts ahead of time. Risks and rewards must be carefully evaluated and coordinated with your overall  estate plan. 

And those ubiquitous ads for reverse mortgages? Well, they do little to educate the public about the product's complexity. According to a recent study from the Consumer Financial Protection Bureau, such ads often contain statements that are incomplete or just plain inaccurate. The report also presents a good general introduction to the product and its risks and rewards. It's worth reading if you are considering a reverse mortgage. Read it  here.

1 comment:

John said...

Good post! HUD's made very intelligent improvements over the past few years, and hopefully the HECM program is now on solid footing in a way that's both sustainable long term and best serves seniors.

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