The fallout from our United States economy continues to claim victims. The most recent victim is the reverse home mortgage.
Indianapolis homeowners in any financial difficulty need to have options in accessing the equity in their homes. That is if there is any equity left with the declining of home values. The Indianapolis real estate market has been hit heavy with home values dropping but recent reports indicate there is reason to be optimistic because this decline is slowing down across Indiana.
However even with the optimism this continuing decrease in home values is at the center of the FHA recently shutting down on the reverse home mortgage.
The latest victim of our economy was felt on September 23 as David Stevens, the Federal Housing Administration’s Commissioner, sent a letter to lenders of reverse mortgages stating that the agency will be reducing the maximum that seniors (62 and over) are able to receive from a reverse home mortgage due to a budget shortfall of almost $800 million for the program’s upcoming year.
Although those homeowners who already have an FHA reverse mortgage loan in place will not feel the affect of this change, those applicants interested in a reverse mortgage and apply after October 1 will feel about a 10 percent decrease in approvals.
Experts are predicting that this change in policy could affect in excess of one out of every five applicants from being able to pay off existing mortgages with a reverse loan. The fallout from this reality will continue as some elderly homeowners will now find themselves in over their heads on their mortgages, unable to meet monthly payment obligations and possibly have to start looking at foreclosure options. Some predict these changes could affect tens of thousands of senior homeowners.
How does a reverse mortgage actually work? With a reverse mortgage (or a home equity conversion mortgage as FHA calls it) lenders usually offer seniors a payment in one lump sum then monthly payments or a home equity line of credit to make up the difference. The total owners receive is secured by the equity in their homes and are due, with the addition of interest, when the property has to be sold or the owners no longer claim it as residence. The main advantage to owners is that they are allowed to stay in their homes regardless of whether their debt becomes greater than the value of their property.
Applicants who thought they could pay off their mortgages and still have a little left over are now unable to do so because of the October 1 changes.
If the balance of the loan reaches the maximum that can be claimed against the home, according to FHA, the lender then has the right to assign loans to the agency and subsequently be paid whatever is owed on the balance. In early 2009, the Obama Administration informed FHA that the reverse home mortgage program would require a subsidy of almost $800 million by the first of October to bridge the valley being formed between the predicted balances given to homeowners and the values of their properties backing them.
Officials are stating that this bridge could be created in several different ways including appropriations by congress, a premium increase for insurance that borrowers are charged or reducing principal amounts. They opted to reduce principal amounts.
Those in charge are hoping these small changes on the front end will keep reverse mortgages an ongoing option for seniors.