On August 29th HUD announced significant changes to the reverse mortgage program that will take effect on October 2nd, 2017. Normally, large changes like this are announced much further ahead of time allowing for public comment, leaders in the industry to get involved and for lenders to get prepared for the changes. Not so with this change. This was a major bombshell and the industry is scrambling to make adjustments, update software, figure out pricing etc.
There are three significant changes:
Reduction In Amount People Can Borrow: I am not going to get into all of the technical aspects on the way loan limits are calculated as it is boring, technical and irrelevant for this letter.
The outcome from this change from what I have been able to calculate is that people will be able to borrow about 10% +/- less than the current guidelines. While that may not sound like much, it is 10% of their homes value. A person with a $300,000 home will be able to borrow about $30,000 less based on current guidelines. Actual limits will be based on current interest rates and age of borrowers.
Change In Upfront Mortgage Insurance: Currently the upfront mortgage insurance fee to FHA is either .5% or 2.5% of the appraised value, which is determined by initial loan balances. Starting in October, the upfront fee will be 2% across the board.
Annual Mortgage Insurance: This is currently 1.25% annually but calculated on a monthly basis. This will be dropping to .50%.
Why Is This Happening?
Losses from reverse mortgages are putting a strain on FHA’s mutual mortgage insurance fund. There has only been one bail out from Congress which happened in 2013 and which HUD states were due mainly to losses from reverse mortgages. HUD also stated that it “would require an appropriation from Congress for FHA to endorse new reverse mortgages in FY 2018.”
The Benefits to The Changes?
The first and most important is that the reverse mortgage program will continue to exist and be available to millions of senior homeowners across the nation.
Secondly, with the lowered loan limits and lower annual mortgage insurance, it increases the likelihood of retaining more equity over time should the homeowner need or want to sell the home in the future as well as leaving more equity for heirs.
What Should You Do?
If you are interested in getting a reverse mortgage. Now is the time to take action. As long as an FHA case number is pulled before 10/2/2017 and the loan is closed in a timely fashion, you could benefit from today’s guidelines. In order to pull an FHA case number, you need to complete counseling and complete an application with me.
Realistically, you need to get you counseling done before 9/29/2017. The issue is every loan officer out there including myself are calling all of their potential clients that were on the fence and informing them about what is happening. Multiply that with all the other loan officers out there and the counseling providers could get overwhelmed very quickly causing delays on getting the counseling completed.
(Update) – Many counseling agencies are already book out past the 10/2/2017 change date. We have been personally calling agencies to find spots available for our clients. We have found a few that still have spots open.
What I have been telling my clients that are interested in getting a reverse is that we need to get the counseling completed, application completed in order to request a case number. This does not mean you are required to move forward. And there are no penalties or fees from me or Pacific Residential Mortgage should you decide later that the reverse mortgage is not right for you.
Call me today to get this started. 541-773-3131