8/31/2017 | Casey Fleming — HUD announced this week a couple of major changes to their reverse mortgage rules. HUD insures the most common reverse mortgage in the country (by far), the Home Equity Conversion Mortgage.
Beginning with files that are registered after October 2nd, 2016, the up front funding fee will be 2.000% of the loan amount on all transactions. In the past, the fee was 0.50% or 2.50%, depending on the percentage of the initial principal limit a borrower took in the first year of having the mortgage.
On the positive side, the annual mortgage insurance premium will be reduced from 1.25% to only 0.50%. This will lower the effective annual cost of the loan to seniors. However, lenders can still charge whatever interest rate they choose (and that the market supports) so the reduction in the mortgage insurance premium could simply benefit lenders, at least until competition drives margins down.
The last major change to reverse mortgage rules is that the formula for calculating the initial principal limit is changing, with the effect that all borrowers will qualify for less money than they do now. HUD has been silent (so far) on what the new limits will look like. Today they depend on a combination of factors, including the property value, the maximum award amount (which is equal to the Fannie Mae / Freddie Mac high-balance conforming loan limit in each county), the interest rate and the youngest borrower’s age. The age factors are not likely to change, but all the other factors could be involved in the new eligibility tables, and for many borrowers the effect could be profound.
To beat these changes, you must apply for your reverse mortgage and complete your counseling before October 2nd.