An Update on the Upcoming Reverse Mortgage Program Changes
As changes to the reverse mortgage program continue, the specifics of the changes continue to trickle in. In the National Reverse Mortgage Lenders Association's Weekly Report, President and CEO Peter Bell, details various updates on the upcoming changes.
In addition to the consolidation of the two existing reverse mortgage products--the Standard and Saver--into a new product, whose principal limit factor will fall somewhere between the two existing products, there will also be two new, "pricing options" for the new product:
- Borrowers who draw less than 60% of the Initial Principal Limit (not 60% of the appraised value) at the closing of the loan will pay a nominal upfront Mortgage Insurance Premium, similar but not exactly like, the current HECM Saver. Prices can be slightly higher than the current HECM Saver as well.
- Borrowers who draw 60% or over the IPL at the closing of the loan will pay the full upfront MIP, similar to the current Standard. The fee might be slightly higher than the current 2% MIP for the HECM Standard product.
In addition, there will be a "principal limit use restriction" based on the "mandatory obligations" (or lack thereof) of the borrower:
- Borrowers with no mandatory obligations, or with obligations below the 60% threshold, will be able to draw up to 60% of the threshold at the closing of the loan. The balance of the Initial Principal Limit, in addition to the line of credit growth, will be available to the borrower a a Line of Credit or fixed-monthly payments (starting one-year after closing).
- Borrowers who have mandatory obligations (mortgages, liens, etc.) above the threshold will be able to draw enough funds (at the closing of the loan) to cover their financial obligations and, in some cases, an additional amount of cash.
The amount that can be drawn beyond the mandatory obligations has yet to be determined, although 10% of the initial principal limit is what will likely be allowed. The balance of the Initial Principal Limit, in addition to the line of credit growth, will be available to the borrower a a Line of Credit or fixed-monthly payments (starting one-year after closing).
Mandatory financial obligations include by aren't limited to:
- Costs associated with obtaining the HECM
- Liens secured by the property
- Any outstanding federal debts
Regarding the HECM for Purchase, the full initial principal limit could be considered a mandatory obligation, allowing for the full amount of funds to be used at the time of closing. However, full details on how the HECM for Purchase will work under the new obligations have yet to be released. The two different pricing options associated with the MIP would apply.
In addition, the financial assessment will be implemented at a later date along with the property tax and homeowners insurance set-asides.
The full extent of the changes have yet to be determined. However, if you are considering a reverse mortgage, it's crucial not to wait. The changes to the program are coming and quickly, the choice is up to you.
Click here for more information about the elimination of the reverse mortgage program as we know it: