The change has begun within the reverse mortgage industry with the recent implementation of new principal limits imposed by HUD. One of the problems is the lack of sufficient notice to lenders and borrowers of the ten percent reduction. Even though there had been rumors of a principal reduction, the final notification of this change came only a week before its commencement thus providing little time for potential borrowers to arrange required counseling and obtain a FHA Case # by the September 30th deadline. Only those homeowners who were able to meet the deadline were able to obtain reverse mortgages under the previous principal limitations. Even though many lenders hired additional staff in order to provide the necessary counseling they were unable to keep up with the increase in applications the short notice caused.
This ten percent reduction may prevent some borrowers from being able to pay off their debts thus creating a reduction in their expected cash flow. That means instead of having extra cash from the repayment of debts they will have to pay those debts with their retirement income or from the monthly payments they receive from their FHA reverse mortgage if they have chosen a variable rate mortgage that allows monthly payments. This is even more chaotic for those who still had a mortgage on their homes and had to include that into the reverse mortgage—it will leave an even larger gap in the proceeds that are available for payment of debts or other necessities.
The sudden ten percent reduction in the principal amount means both lenders and borrowers have to reanalyze their needs in order to come up with a different plan from the one they had previously developed. Although this change does not affect the actual national lending limitation, it does affect the amount an individual borrower can obtain by reducing the amount for which he or she qualifies. The purpose of the reduction is to help finance the $798 million HECM subsidy that is necessary to cover projected losses due to the declining real estate market.
Whether the decision was sudden or the notification was late, does not change the fact that it is creating chaos throughout the industry. Though ten percent does not seem like a substantial amount, for those on a fixed income it can mean the difference between being able to pay off high interest debts and be able to live comfortably during their retirement years. For those who had planned to use the money to buy a smaller home the results may be even more disastrous. Unfortunately the only solution is for each senior homeowner to speak to a reverse mortgage specialist in order to work out an equitable solution for still doing the things they need to do with the funds from their reverse mortgages.
A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like more information, please call (866) 683-3690 or visit Reverse Mortgage website.
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