New Limits on Reverse Mortgages

On September 30, the Federal Housing Administration imposednew regulations making it more difficult and expensive to take advantage of federallyinsured reverse mortgages.  Here are the changes taking effect:

• First-year limit: Duringthe first year, homeowners may now withdraw only up to 60% of the eligible sum.
• Smaller loans:Borrowers used to be able to take out up to 61.9% of their home’s value, butnow it’s about 15% less than that.
• Fee changes: Theupfront fee for a standard reverse mortgage was 2% of the property’s value andthe upfront fee for a saver reverse mortgage was 0.01%.  The upfront fee is now 0.5% across the boardand those who take out over 60% of their home’s value will have to pay a 2.5% insurancepremium.
• Financial assessment:Before issuing a reverse mortgage, lenders will now have to analyze theborrower’s ability to meet tax and insurance payments.

The FHA is imposing these restrictions to mitigate insurancelosses and make people more careful about how they fund retirement.

See Mike Anderson,Retirement Just Got Harder: The FHA SetsNew Limits on Reverse Mortgages, The Motley Fool, Sept. 29, 2013.