The Housing and Economic Recovery Act of 2008 provides good news for consumers interested in tapping home equity through the use of an FHA insured HECM reverse mortgage.  The changes that pertain to reverse mortgages have been languishing in Congress for more than two years.  Thankfully, they were finally included in a bill that had almost 100% chance of passing. 

It is anticipated that some of the amendments will take place as early as October 1st, 2008 and others will be implemented in January, 2009. The likely changes to be made in October are:

1.)  Uniform National Lending Limit
Under the new law, the loan limit nationally will be increased to $417,000. However, that limit may be increased to $625,000. in high housing cost areas of the country. The new uniform loan limit is welcome news. Prior to the passage of this bill each county throughout the country had different loan limits. They ranged from $200,160. to $362,790.

2.)  Cross Selling of Financial Products - Prohibited
The new housing bill includes a provision to prohibit lenders from requiring borrowers to purchase insurance, annuities or other similar products as a condition for a reverse mortgage. The new law also restricts lenders who are originating reverse mortgages from working with, employing or providing incentives to other professionals that attempt to sell seniors other financial products as part of the reverse mortgage application process. This provision has been included in the new law because of concerns that seniors have been inappropriately, and sometimes even fraudulently, sold additional financial products with the money received from obtaining a reverse mortgage loan.

The Financial Industry Regulatory Authority (FINRA,) has issued several warnings in the past about reverse mortgages. They have cautioned seniors about doing business with financial professionals that want them to obtain a reverse mortgage in order to purchase an investment product, such as an annuity or long term care insurance.

3.)  Origination Fees - Reduced
A reduction in loan origination fees is another part of the Housing and Recovery Act that will take place in October. The origination fee will be limited to 2% of the first $200,000. and 1% of any amount over $200,000. not to exceed a total maximum origination fee of $6,000.

Further study into the costs associated with reverse mortgages is to be conducted by HUD during the next several months. It will be interesting to see if they consider a reduction in the MMI (Mutual Mortgage Insurance) premium that HUD charges for each reverse mortgage loan that it insures. Currently the mortgage insurance premium is 2% of the home value or the loan limit whichever is less. This fee, after October 1st will, in many cases, be a larger expense to borrowers than the loan origination fee.

With all the criticism about high fees for reverse mortgages, I would hope that HUD takes a serious look at their own cost impact for what is an invaluable tool for many senior citizens. If HUD really wants to give seniors access to more of their home equity, cutting the insurance premium in tandem with the mandate to lower origination fees would seem like an appropriate tactic.