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Reverse Mortgages Changes Roll Out October 1

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On September 3, 2013, HUD released a mortgagee letter announcing major changes to the reverse mortgage industry. The reverse mortgage program’s purpose was to help supplement the income of retired seniors, ages 62 years and older. However, beginning October 1, reverse mortgages will be a little harder to get and borrowers can expect smaller payouts after the changes have been put in place.

The adjustments to the reverse mortgage guidelines will begin on October 1, 2013 and may affect those who are looking to apply for a loan or refinance. HUD also announced additional changes that are expected to begin on January 13, 2014.

Here are the rules that will take effect October 1st:

1. Lending limit will be decreased.    

· Under the reformed rules, the amount that a borrower has access to will be 15% less compared to the maximum amount that was previously available.

2. There will be a limit on how much a borrower can take out at closing.

·The changes will include putting a cap of 60% on the amount of money that a borrower can take out during the loan’s first year. Previously, the borrower was able to receive the entire lump sum payment of their reverse mortgage loan, which can be beneficial for those who are in need of making big payments. With the new rules, if the homeowner was eligible for $200,000, they only are able to take out $120,000 or 60% within the first 12 months. Some exceptions can apply.

3. The HECM Standard and Saver will be consolidated into one new product.

·The standard and saver options will no longer be available beginning October 1, 2013. Currently, the Standard loan allows seniors to take out 56% – 75% of the home’s appraised value, with consideration to the borrower’s age. The Saver loan takes about 10-18% less than the Standard rate, also dependent on the age of the borrower. The Saver product allows borrowers to pay less upfront Mortgage Insurance Premium than the Standard product. According to the mortgagee letter, borrowers will expect the following changes to their payouts: those who take out less than 60% of the Principal limit will be charged a Mortgage Insurance Premium (MIP) of 0.5%, while those who take out more than 60% will be charged an MIP of 2.5%.

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