The U.S. Department of Housing and Urban Development (HUD) is set to roll out a new set of reverse mortgage rules if/when the proposed regulations are approved. These new rules would reduce the volume by nearly $2 billion annually, but would also help reduce foreclosures and prevent evictions, as the government aims to make these loans more veritable for lenders and borrowers.
The HUD is planning to add rules that mandate credit counseling for all borrowers and that also mandate that lenders disclose the features of the loan in language that borrowers can better understand. In addition, HUD is also looking to cap interest rate increases on adjustable-rate mortgages and will look to mandate that lenders pay off the insurance premiums when the reverse mortgage balance has been paid off or when it's been transferred.
What's more, the HUD is looking to also implement a "cash for keys" program that would allow both borrowers and home heirs a seamless exit via deed arrangement with the lender. This measure is being proposed to help eliminate foreclosure and eviction procedures and to ease the process in the future.
Currently, reverse mortgages represent just 1% of the mortgage market. The HUD has said that its new proposals would reduce annual volume by as much as $2 billion, or about 11.8% overall. As of Q4 2015, reverse mortgages were valued at $16.1 billion nationwide.
These new rules, if approved, will be added to other sweeping regulation that the HUD integrated just a few months ago when they added defining new reverse mortgage rules to the landscape.
Reverse mortgages are a special kind of HECM loan that's extended to homeowners who are age 62 or older, and who have significant equity in their home. The home must be a primary residence, and the homeowner has to demonstrate the financial ability to pay for home upkeep, property taxes and homeowner's insurance to qualify. No credit or income is required for these loans.
Reverse mortgages can be tendered in the form of a lump sum, line of credit, monthly payout or combination payment method. No payments are due until after the borrower's death. Typically, mortgage premium insurance (PMI) is required and can be wrapped into the financing. Not all borrowers will qualify.